After a tough 2020, leading cannabis stocks are off to a hot start this year, recording positive Return on Investment. Some of the stocks have more than doubled since the end of last year.
Data presented by Buy Shares indicates that five selected major cannabis stocks have surged in 2021, recording an average return of investment (ROI) of 75.72% on a year-to-date basis. Tilray has recorded the highest returns by 143.22% among the companies, with a share price of $20.9. The stock ended 2020 trading at $8.26 per share.
Elsewhere, Canopy Growth, with the highest share price of $42.73 as of January 19th, has the least returns at 36.43% out of the five companies. The stock closed trading in 2020 at $31.32 per share.
Positive legislation impacting cannabis stocks
With stocks like Tilray more than doubling, it is a good indicator for the cannabis sector after a challenging 2020. Most stocks lost significant value due to the coronavirus pandemic. Most companies recorded an overall decline in revenue after the coronavirus-related sell-off was difficult to overcome. Besides, the pandemic triggered a collapse of the stock exchange to a large extent.
Casting the negative effect of the pandemic on the cannabis sector aside, the top marijuana stocks have benefitted from the U.S. Democrats taking control of the senate. The passage of the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act in December has acted as a rally for the stocks.
The new legislation removes cannabis from the Controlled Substances Act and enacts various criminal and social justice reforms related to cannabis. U.S legislators have already designed legislation to help banks and other financial institutions provide services to marijuana companies in legalized states without penalty. This approach is attracting attention to the cannabis sector.
As the marijuana banking reforms align well with the overall cannabis industry, there are growing expectations about marijuana decriminalization, especially at the federal level. States that have legalized marijuana are expected to pressure neighboring states to legalize marijuana to earn more on tax revenues. Investors, therefore, expect the federal government to consider legalization.
Federal decriminalization of cannabis holds the potential of rapidly expanding the market for producers. In the current forms, most companies have been relegated to states where the drug is legal.
The stocks might also be soaring due to improved sales resulting from an enhanced supply chain. Following the pandemic, marijuana is bound to be more accessible to customers due to improvement in the pandemic triggered by the growth of delivery systems like the use of curbside pickups. In return, this could potentially boost sales and revenues.
Cannabis sector to raise more capital in 2021
This year the sector is also expected to witness the entrance of more institutional investors. Established funds have begun taking equity stakes in several leading cannabis companies. Initially, investors had stayed away from the sector mainly due to negative press and lack of profitability. However, several SPACs are now targeting the cannabis sector and have shown the intention of pumping millions for expansion.
The capital raises will mainly go into buying accretive assets. With enough capital, the market will be efficient in return, attracting more institutional investors to come on board. Despite the momentum by cannabis stocks, the focus will look at sustainability in the long term.