Cannabis stock investors have been on a wild ride since 2018 when Canada first announced that recreational cannabis would be legalized. Attention has since turned to the US where cannabis has been legalized in a growing number of states, and where legalization at the federal level appears to be drawing closer.
The legal status of cannabis in the US has created a unique situation. Cannabis use for medical reasons is allowed in 37 states, while cannabis can be used recreationally in 21 states. However, cannabis use is still prohibited at the federal level.
This legal framework has created the absurd situation where US cannabis companies can be publicly listed in Canada, but not in the US, while Canadian cannabis companies are allowed to be listed on US exchanges. Most US based companies are listed on the OTC market, but until cannabis is legal at the federal level you won’t see them on the NYSE or Nasdaq.
Another consequence of the legal situation is that most institutional funds (retirement funds and insurance companies) are not allowed to invest in cannabis stocks. This could provide a catalyst if or when cannabis is legalized federally.
As of 2023, Canadian producers are suffering from oversupply and growth is slow. US sales have grown quickly, but some states are also battling oversupply. Nevertheless, more states are expected to legalize cannabis use, and eventually it is expected to be legalized at the federal level too - so there are reasons to expect further growth, though it might not be linear growth. We have therefore focussed on US producers for this list.
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Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned.