The first half of 2021 is over. For cannabis stocks it was a tale of two quarters.
In the first quarter cannabis stocks were red hot. The Advisor Shares US Cannabis ETF (MSOS) was up as much as 68% in the first quarter, driven by the market expecting legalization after the Democrats took the presidency and both chambers of congress.
However, the big rally didn’t last. Cannabis stocks fell sharply in the second quarter and the Advisor Shares US Cannabis ETF (MSOS) finished the first half of the year basically even.
Why the big drop? Although nost of the news coming out of the cannabis industry is awesome, investors became impatient with progress on legalization.
Take a look at the 2021 chart of MSOS.
What Should We Expect in the Second Half of 2021?
Despite the weakness in the second quarter, cannabis stocks are setting up for a strong second half of the year because of five catalysts.
U.S. cannabis sales are awesome: The first-quarter earnings season showed that U.S. cannabis sales are on fire. Here are some of the best results.
- Growgen (GRWG) grew revenue by 173% from last year
- Curaleaf Holdings (CURLF) grew revenue 170% from last year
- Trulieve (TCNNF) grew revenue 106% from last year
- Green Thumb Industries (GTBIF) grew revenue 95% from last year.
These impressive results demonstrate the the U.S. cannabis industry is expending rapidly and that should be a strong tailwind for cannabis stocks.
Flurry of US states going legal: 2021 has been a banner year for more U.S. states going legal. Four states have already legalized in 2021 and there should be more to follow, including high-population states such as New York and Pennsylvania.
We still expect major cannabis reform in 2021: Although federal legalization looks unlikely in 2021, we still see a high probability of major cannabis reform happening this year. We see that happening with The Secure and Fair Enforcement (SAFE) Banking Act, a bill that would fix some of the cannabis industry’s biggest financial problems. The SAFE Act isn’t long-shot legislation. This bill has already made serious progress in Congress. The SAFE Act was introduced by Colorado Democrat Ed Perlmutter back in 2019. The SAFE Act has passed in the Democrat-controlled House four times, most recently in April of 2021. Here is a link to a report I wrote for Cannabis Stock Trades with more details on the SAFE Act.
The chart formation looks bullish: I see two bullish signals on the chart. The first is that the cannabis sector is down 34% from the 52-week high. This is a sharp discount to the high and that should attract new investors into the sector. The MSOS ETF is also in a bullish formation on the chart called a bull flag – a formation that frequently leads to an upside breakout and new high. Take a look at the 12-month chart below.
The Big Picture
Cannabis stocks had a tough second quarter and closed the first half of the year basically even. Despite the volatility, the U.S. cannabis industry is booming and I expect a strong second half of the year for cannabis stocks. My plan is to stay patient, continue holding my current cannabis stocks, and also be looking to add more shares when these stocks are down.
I’ll be back with another update next week – have a great day!
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
Author Michael Vodicka owns shares of Green Thumb Industries (GTBIF) and Curaleaf Holdings (CURLF).