I'm not a political person and do not have a partisan bone in my body. Still, the election this November could shape certain stock market sector performance over the long term. Experienced market participants with time horizons of several years (not months) understand that presidential elections often over promise the implications for equity markets. Regardless, a Biden win could serve as a tailwind for these two sectors:
While there's no guarantee that Joe Biden will legalize cannabis, his proposed cabinet is full of supporters. Today, America boasts bipartisan support for federal marijuana legalization. With regulation currently up to states, multi-state growers can legally only sell to roughly a third of the American population. This means that illicit markets with no regulations or quality control continue to thrive in many parts of the country. Furthermore, American growers cannot currently export to European nations, however, federal legalization would open up that option.
The federal government currently collects zero federal tax on cannabis sales. With the pandemic obliterating government revenues, it is now even more timely for a president to support federal legalization and taxation of cannabis.
Cresco Labs and Green Thumb Industries are two large US multi-state operators that would surely benefit. The bigger boost, however, may be for the Canadian growers. Canada's population is just over one-tenth the size of the U.S. and has a fraction of the retail footprint. California alone has more legal cannabis consumers than Canada. Federal legalization in the U.S. would mean companies like Aurora Cannabis and Canopy Growth could export product to the states and enjoy a massive increase in their addressable customer bases. Based on the current supply gluts facing our friends up north, this would be welcome news.
Renewable energy supply chains
Next is renewable energy and all ancillary companies. Biden's infrastructure plan aims to pump $2 trillion into green energy investments over four years. The money will be used to build solar panels, charging stations, and more. Obviously, this would be bullish for large renewable energy stocks like First Solar (FSLR 1.16%). This energy company operates several large-scale solar power plants nationwide and manufactures solar panels using proprietary photovoltaic technology. The benefits, however, extend beyond pure-play green energy companies.
Large industrial companies will surely be needed for such a transformative initiative. That is good news for stocks such as Caterpillar, as $2 trillion in new infrastructure surely requires equipment. Caterpillar sells industrial machines likely needed to build a greener grid. Perhaps even more interesting: The company has a growing solar energy business of its own that could benefit.
Biden's plan also calls for extensive investments in rebuilding roads & bridges. It's feasible to think asphalt and concrete giants like Vulcan Materials could benefit.
Silver is also a clear beneficiary. Photovoltaic cells (the most common solar panel type) require large amounts of silver to construct. This is a positive for related tickers such as iShares Silver Trust. Yes, mining is environmentally taxing, but it is also a necessary evil if national solar farms are going to be a reality. The metal is a rare combination of an industrial material used in green energy and an inflation hedge. With all the stimulus money being pumped into the economy, and Joe Biden fully planning on sizable renewable energy spending, now may be a good time to make an investment.
Until November, there will be an overwhelming amount of political commentary to digest. Some will be useful for investors but most won't. For market participants more interested in stocks than following a campaign, this is an objective take on the cause and effect of a Biden win. Cannabis and renewables look poised to gain from a Biden victory that will lead to legislation.