Since then, we have seen a complete reversal, as cannabis has been one of the best performing equity sectors during the last rebound. Over the past 10 weeks, cannabis equities have clearly outperformed the S&P500 and nearly doubled the performance of similar small-cap value names in the US.

Cannabis Outperformance vs. S&P 500 Since March 2020

Legalization: where do we stand ?

Recreational legalization will continue to spread across the country as U.S. States are now in desperate need of new jobs and tax revenue. Apart from jobs and revenue, legalization will help to lower cost of policing and help empty out American jails, saving billions.

New Jersey and Arizona will vote for legalization in November 2020. New York, Pennsylvania, Maryland and Connecticut are expected to follow close behind. Once these States make a move, the others will be pressured to follow quickly. 

In terms of the important banking bill (Industry players still cannot open regular bank accounts in the US and are forced to handle all their transactions in cash, the “SAFE Banking Act” is designed to fix this), McConnell has shown he will not pass it as a stand-alone legislation. Democrats have a chance to fit the banking bill into a phase 4 Coronavirus stimulus’ bill later this summer.  

The 2020 US Presidential election and Cannabis:

Joe Biden will likely continue to lead in the polls, spurring further momentum for legalization. If the Democrats win and control the House, Senate and White House, they will quickly legalize at the Federal level. Trump knows that and could move first in order to legalize before November and stop the Dems’ momentum. Remember FDA guidelines on CBD are sitting on Trump’s desk waiting to be approved.

Stock-picking in the Cannabis world? U.S. Stocks are Cheap vs. Canada and will play catch-up as we move towards legalization

Despite US-based Curaleaf's revenues being similar to Canada's Canopy Growth, Canopy trades at a much higher market cap (and thus valuation, see below chart).

Many buyside institutions are still not able to buy these US cannabis stocks due to the regulatory landscape. Nobody on the Street knows these companies. Curaleaf trades at 60% of CGC's valuation, Green Thumb trades near 40% of CGC's valuation, and Trulieve near 20% of CGC's valuation despite all having similar sales and growth rates. We believe US names will dramatically outperform their Canadian’s peers over the next 12 months.

Produced in partnership with The Bear Traps Report / Bastien Chenivesse