Before
the hype surrounding meme stocks and AI, cannabis producers were one of the
hottest topics among investors hoping to multiply their money quickly. The big
bet was on the legalization of cannabis for non-medical use, its production,
and sale in Canada, a change that effectively came into effect in October 2018.
However,
once the event took place, the classic “buy the rumor, sell the news” pattern
played out in stocks like Aurora Cannabis and Canopy Growth Corporation. Since
then, their share prices haven’t just failed to recover — they’ve collapsed by
more than 95%. Not even BTCUSD
has seen a drop that steep.
In
hindsight, the boom was nothing more than a bubble that eventually burst. There
were some attempts at recovery, driven by hopes that the US would decriminalize
cannabis at the federal level, which would open up a vast market for these
producers, but in the end, these hopes have not yet been realized.
In 2022,
the industry was getting closer to that goal: the US House of Representatives
passed the Secure and Fair Enforcement Banking Act (SAFE). This law would
subsequently allow cannabis companies to access traditional banking services,
simplifying their lives.
It
should be noted that as long as cannabis remains illegal at the federal level,
companies cannot open regular bank accounts. Only a few regional banks are
willing to work with them, and it is almost impossible for them to obtain
loans. As a result, companies have had to resort to issuing more shares or
bonds to raise capital.
Unfortunately
for cannabis producers, the bill stalled in the Senate. Three years later,
nothing has changed.
Could
Trump save the sector?
Recently,
Donald Trump stated that his administration is “looking into” reclassifying
cannabis as a less dangerous drug. To put this in context: while
cannabis is legal (even for recreational use) in 24 U.S. states, it remains
illegal at the federal level. No surprise, cannabis-related stocks soared
following Trump’s remarks.
The
issue is that it’s still far too early to talk about real change in the sector.
We’ve seen this many times before — stocks
jump on optimistic headlines, but the promised reform
never materializes. Former President Clinton also attempted to reclassify
cannabis as a Schedule III drug but failed to do so before leaving office.
For that
reason, going all-in on cannabis producers still seems like a risky move. One
should also consider analyzing each company individually or, better yet,
consider an ETF that covers the entire sector. Investing in overall market
sentiment is essential, as heightened risk aversion could easily trigger a
sell-off.
This article was written by IL Contributors at investinglive.com.