Cannabis Stocks Gain 6% in First Half of 2021

The first half of the year brought some challenges for the cannabis industry but also some promising news as well. The industry will be on the front of the news again for the second half of the year, and as the cannabis sector continues to mature, it is poised to grow significantly in the future.

The Cannabis stocks have been gaining on the news of Canada legalizing the recreational use of marijuana. With the price of pot going up, cannabis companies are reporting bigger profits and are starting to report positive financial news that they have been missing.

With the legalization of recreational cannabis in Canada, the global cannabis market has completely changed since October 2018. The market has grown from an estimated $5 billion to a staggering $50 billion and will continue to grow in the coming years.

Cannabis stocks got a small boost in the first half of 2021. But the road to this small victory was rather bumpy.

Earlier this year, after Democrats took over the White House and both houses of Congress, a firestorm erupted in the industry. At one point in early February, the Advisor Shares US Cannabis ETF (NYSE: MSOS) was up more than 50%.

However, after reaching a new 52-week high, cannabis stocks slipped into a bear market. After declining for most of the past three months, the Advisor Shares US Cannabis ETF ended the first half of 2021 6% higher.

Chart 6 monthsAdvisor Shares US Cannabis ETF (NYSE: MSOS)

Canadian cannabis stocks have posted a similar performance: Canada’s marijuana index is up 6%.

The weakness that has hit cannabis stocks has been caused by two main factors.

  • In 2020, cannabis stocks posted huge gains, leading to a series of profit-taking events that sent cannabis stocks into a bear market.
  • Uncertainty over passage of a new cannabis law in 2021.

Despite a volatile first half of the year, cannabis stocks are poised for a strong performance in the second half of 2021. We see six powerful catalysts on the horizon that should give cannabis stocks a big boost over the next six months.

6 strong catalysts in second half of 2021

#1 – Cannabis stocks are bullish on the charts.

Cannabis stocks seem to be moving up on the chart after the recent decline. A long-term bottom appears to be forming in this sector, which could provide an interesting entry point. This can be seen in the graph below.

Advisor Shares US Cannabis ETF (MSOS) has created a key support level between $35 and $40, and the stock has bounced off this key support level. I expect the stock to continue to rebound from this level and rise further in the second half of the year.

12-month chart Advisor Shares US Cannabis ETF (MSOS)

#2 – More states in the U.S. becoming legal

2021 was an important year for the transition of the new states to legal status. Four other states legalized recreational cannabis in the first half of 2021, including New York, New Jersey, Connecticut and New Mexico.

Other states, including Pennsylvania and Rhode Island, are expected to follow suit by the second half of 2021. As more and more states move toward legalization, the U.S. cannabis industry is expected to see an increase in sales in the second half of the year.

#3 – Amazon will lobby Congress for legalization.

Two weeks ago, Amazon created a furor in the cannabis industry by announcing its support for federal cannabis legalization. Amazon wants to achieve this goal through Moore’s Law, a cannabis bill currently being considered by Congress that would essentially legalize cannabis on a federal level.

This is good news for the American cannabis industry. Amazon is one of the most powerful and influential companies in the world and has a long history of achieving its goals. Amazon’s support for legalization raises the possibility of meaningful cannabis reform in the next 12 months. If the More Act passes, I expect cannabis stocks to rise.

#4 – Supreme Court Justice Clarence Thomas calls for cannabis reform.

The US cannabis industry has another strong ally this week. Clarence Thomas, a judge on the United States Supreme Court, has issued a statement calling for reform of federal cannabis laws.

It will not change the situation, but it is an important step in the right direction. This shows that lawmakers at the highest level recognize the urgent need for the United States to update its cannabis laws. It also comes from one of the most conservative judges, noting that cannabis reform enjoys broad support on both sides of the aisle. In either case, Judge Thomas’ ruling raises the possibility of meaningful cannabis reform in 2021.

#5 – Great potential for cannabis reform

Cannabis investors are disappointed by the lack of cannabis reforms in the first half of 2021. But in the second half of the year, I still see a great chance for significant cannabis reform. There are several cannabis bills currently before Congress that will have a major impact on the US cannabis industry, including the More Act and the Safe Act. Both bills have bipartisan support, and Amazon’s insistence on the More Act makes it a lot more likely to succeed.

#6 – U.S. Cannabis sales on the rise

The American cannabis industry is on fire. Market leaders in this sector are experiencing incredible revenue growth, unmatched by other sectors. The recent quarterly figures have demonstrated this.

Here are some examples:

  • Growgen (GRWG) saw its sales increase by 173% over the previous year.
  • Curaleaf Holdings (CURLF) has seen its turnover increase by 170% from the previous year.
  • Trulieve (TCNNF) increased its sales by 106% year-on-year.
  • Green Thumb Industries (GTBIF) increased its sales by 95% from the previous year.

The strong quarterly results show how fast the cannabis industry is currently growing in the US.

And cannabis sales are expected to skyrocket in the future as more states achieve legal status.

Review in the second half of 2021

Despite the recent bear market, cannabis stocks still posted small gains in the first half of 2021.

Looking to the future, I would say that this weakness is actually a great opportunity. In the past, these phases of weakness were interesting entry points. In addition, I see six strong catalysts that I believe will propel cannabis stocks higher in the second half of 2021.

About the author and cannabis stock trading

Michael Wodicka is an equity analyst with over 20 years of trading and investment experience. His research has received attention in some of the industry’s most respected publications. He has been investing and managing investors in the cannabis sector since 2013.

Mr. Vodicka offers his experience and advice to Cannabis Stock Trades members.

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