Banks of America wanted to disrupt the traditional financial services industry. So they entered the recreational marijuana market in the US. The bank announced on Wednesday that it will resume business with licensed providers in California starting this week.
This week, Bank of America has begun renewing coverage for some customers who have been excluded from coverage for medical reasons, including cancer, mental health, and HIV/AIDS. This change is important, as it suggests that medical marijuana and synthetic cannabinoids are not as dangerous as the federal government has long claimed. If this trend continues, it could lead to a correction in the market, which would be a significant boon to companies that have yet to launch their products.
Pot stocks have gone up as Bank of America resumes coverage of medical marijuana businesses in states where it is legal, providing a welcome reprieve as the bank tries to rebuild its reputation after its $2.64 billion settlement with the U.S. Justice Department over foreclosure abuses. The move, which came after a two-year hiatus for the bank, is a relief for the medical marijuana industry, which has seen a notable slowdown in new business as the stigma of being associated with drug dealing has dissipated.
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Pot actions supported by Bank of America
The stock prices of the three cannabis companies rose recently after Bank of America Corp (NYSE:BAC) renewed its coverage. Canopy Growth Corp (NYSE:CGC), Tilray Inc (NASDAQ:TLRY) and Aurora Cannabis Inc (NYSE:ACB) are trading higher after new reports. But more important than this rapid growth, it bodes well for the future of the industry. Of the three marijuana stocks that jumped, ACB was at the top (which makes sense given that TLRY and CGC stocks did better in 2020). Tilray’s shares were already rising due to its impending merger with Aphria Inc (NYSE:APHA). At the same time, Canopy Growth’s stock posted the smallest gain of the three companies. This also makes sense. Canopy Growth had the highest share price growth of this trio in 2020. In other words: Tilray and Aurora shares were heavily discounted, while Canopy Growth traded more fairly. Chart provided by StockChart.com Still, Bank of America was the most optimistic on Canopy Growth Corp, giving it a Buy rating in its new coverage. The bank expects Canopy Growth’s shares to grow by about 28.5% in the next 12 months. A Bank of America analyst said the balance sheet, [management] team and partnerships of Canopy Growth Corp. position CGC well to enter the U.S. market in the event of federal legalization, and that CGC’s improving [earnings before interest, taxes, depreciation and amortization] and cash flow make the stock attractive at this time. (Source: UPDATE: BofA Securities reinstates Canopy Growth (WEED:CN) (CGC) rating to Buy, StreetInsider.com, April 28, 2021). I largely agree with this assessment. But beyond what this means for the three cannabis stocks in the short term, investors should also focus on what this means for the long-term prospects of the marijuana industry. It has taken a long struggle to get institutional investors and large banks to invest in cannabis stocks. There are many good reasons for this, not the least of which is the fact that this drug remains illegal in the United States on a federal level. Again, it makes perfect sense. In theory, all money made by marijuana businesses can be seized by the federal government if it wants to. It is highly unlikely, but for the banks the risk is not worth it at this stage (at least in their estimation). But Bank of America is at least partially awake. He supports the marijuana market as the federal legalization of marijuana becomes more prevalent in the United States. My loyal readers (and Profit Confidential readers in general) probably came to this conclusion years ago. The legal uncertainty surrounding marijuana in the United States simply cannot continue for long. Of course, much longer is the crucial part, because it could be a decade or so. However, I seriously doubt that the legalization of marijuana in the United States is in the distant future. The next Democratic president after Joe Biden will almost certainly include marijuana legalization in his or her program (unless Biden changes his mind about marijuana legalization, which is unlikely but not impossible). In fact, the likelihood that the next Republican president will support marijuana legalization is greater than zero. In the United States, a number of right-wing politicians favor the legalization of marijuana. Moreover, the Republican party, which is looking to recover from the reign of former President Donald Trump, may well turn to popular policies like legalizing marijuana. And over time, the young Americans who lived through the height of the war on drugs are being replaced by younger people who see cannabis as a harmless substance rather than a big, scary drug that should be avoided. All of these elements combine to make a very strong case for the legalization of marijuana at the federal level in the United States. Bank of America’s resumption of coverage is, in my opinion, a signal that institutional investors are waking up to what many of us already knew. And that’s good news for marijuana police. When the cannabis market is finally flooded with a huge influx of capital from big banks and funds, we can expect a rapid rise in stock prices. This is one reason why stock analysts are so eagerly awaiting the legalization of marijuana in the United States. While the marijuana industry fights a legitimacy war with the few remaining supporters of American politics (and the American people in general), big names like Bank of America contribute significantly to the credibility and legitimacy of marijuana stocks. So while the three marijuana stocks mentioned above (ACB, TLRY and CGC) offer good short-term opportunities, as Bank of America notes, there is even more room for growth when you look at the long-term market. In my opinion, few industries are as rich in opportunity as marijuana.
It is no exaggeration to say that the near future of marijuana stocks is directly tied to American politics. The entire industry is anxiously awaiting action from the federal government regarding marijuana laws in the United States. And that, dear reader, is a great opportunity for early investors. As marijuana slowly but surely fights for legitimacy, state by state and bill by bill, a roadblock will burst, so to speak, if we see a major reform that drives up the price of marijuana stocks across the board. Institutional investors are cautious, but not blind to this fact. It is likely that they will increasingly turn the spotlight on cannabis-related operations and even invest in some of them if they are decriminalized. But the real payoff will come by the time marijuana is fully legalized in the United States. So it’s a potentially fantastic time to invest. Given the unpredictability of the political system in the US in recent years, marijuana legalization (and the explosion of marijuana stocks) may come sooner than we think.The companies that are growing the most right now are the ones that offer products that can help people manage their health. As long as people are sick and need help getting better, they will be willing to pay a premium for companies that are offering products to help them manage their symptoms. These companies are called “OTC companies”.. Read more about what stocks are up today and let us know what you think.
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