Best Way To Play The Pot Stock Breakout
The pot stock party is back…for now (well, for today!).
There are few sectors that excite the retail investor than pot stocks.
The 2016-2018 bubble was a true hysteria.
Small companies with no sales, no anything, just a license application were fetching $150 million.
Big companies were valued to a point it would take 10 years of growth under ideal conditions to be worth what the market valuing them at.
It was a crazy time.
The hangover, naturally, was just as severe as the party that preceded it.
Most penny pot stocks have just gone away. Stocks that were a few dollars per share are now a few cents.
That brings us to now.
Pot stocks are on fire once again, but it’s probably not going to last.
More importantly, if you understand why this rally won’t last, you could bank a quick profit in this run and be in position to make a fortune when the last and greatest pot stock bull market comes around.
Top Pot Stock Trade To Make Today
The pot stock trade to make right now is buy fast, sell fast, and bank some quick cash.
The combination of events is just too perfect.
To say pot stocks have been left-for-dead would be an understatement.
Pot stocks, after all the promise investors once believed they had, have not live up to any of the hype.
They’ve been major value destroyers over the years.
For example, Canopy Growth (CGC) was once the world’s largest and most valuable legal pot company.
Canopy was worth more than $15 billion at the peak of the pot stock main
It received a $4 billion investment from beer giant Constellation Brands (STZ) during the big run up.
Jump ahead to today and Canopy shares are down 96% from past highs and the entire company was worth about $2 billion, less than half of the single largest investment in it.
So they’re not just left for dead, but also completely hated.
Which means any potentially positive news can send them flying.
That’s what happened yesterday.
President Biden announced a couple of pot related executive actions.
There was a blanket pardon for federal pot possessions charges.
There was a request for a study or investigation to reschedule cannabis at the Drug Enforcement Agency.
And there was official encouragement for states to follow suit.
The announcement sent Canopy Growth up 30% in 30 minutes and many other of the few surviving pot stocks jumped 30% to 40% too.
This is a major breakout that could run a bit from here.
(Note: Monday could be the exceptional blow-out top for U.S. pot stocks).
But it probably won’t run much farther for a number of reasons.
Fool Me Once: Why Pot Stock Rally Won't Last
First, there really hasn’t been any fundamental change.
The executive actions are just window dressing on the industry.
For example, the potential of downgrading cannabis from a Schedule 1 drug (along with heroin and LSD) and downgrading it to Schedule 4 (along with Xanax and Valium) still makes it a heavily regulated drug and the industry would still be federally illegal.
In the long run this change will be nothing more than a pre-election stunt.
It will take legislation completely legalizing pot at the federal level.
After that, there can be the financialization that can drive a great growth surge and fundamental revaluation of the entire sector.
Right now, there’s not much demand for that legislation.
Sure, there is public acceptance. The latest Gallup data says 68% of U.S. adults were in favor of legalization.
But neither the cannabis industry or politicians truly want it right now.
The industry is consolidating and the big cannabis companies are growing market share (this would be much tougher with complete legalization).
The politicians are trying to extract concessions for legislation. There’s a big issue over expungement for past violators that’s not going to be quickly settled and that’s going to prevent full legalization anytime soon.
That’s all why we have to dampen expectations about the current rally.
There may be a bit of a run here, but it won’t be much more.
You can jump on it. Nothing wrong with a quick score.
But don’t buy and hold and end up hating pot stocks like everyone else.
Because if you do you risk missing the next run when full legalization nears and that will be an epic run you won’t want to miss.
