April 20 (4/20) has long been the most celebrated day of the year in the cannabis industry. But it's possible that the industry could have a lot to celebrate this year on Nov. 3 -- Election Day in the U.S. However, there's also the potential for the cannabis industry to be disappointed.
Democratic presidential nominee Joe Biden hasn't been supportive of marijuana legalization in the past. But if he's elected in November, it could be one of the most pivotal milestones toward legalizing pot yet. A task force formed by Biden and Sen. Bernie Sanders supported the federal legalization of medical cannabis and allowing states to make their own decisions about recreational marijuana. Assuming a President Biden adopts these causes, the U.S. cannabis industry could be changed forever.
So will marijuana stocks soar if Biden wins and sink if he loses? The answer isn't as clearcut as you might think.
A Biden boom?
It's important to remember that any U.S. president is relatively limited in what he or she can change alone. Efforts by a potential Biden administration could be hampered by GOP control of the U.S. House of Representatives or the Senate. Let's assume, though, that Democrats gain control of the White House and both legislative chambers in November.
Would marijuana stocks soar in this scenario? Almost certainly. I suspect that we'll see the biggest gains for U.S.-based cannabis operators. Green Thumb Industries (GTBIF 30.33%), for example, ranks as one of the largest multi-state cannabis operators. The Illinois-based company has achieved tremendous success, but its valuation isn't as high as it likely would be if federal marijuana laws were changed.
Canadian pot stocks would also jump with a Biden win accompanied by a Democratic sweep of the House and Senate. The biggest winners would be the stocks of companies that have a quick path to enter the U.S. market. Canopy Growth (CGC 22.15%) stands out as the obvious frontrunner with its deal to acquire U.S.-based Acreage Holdings when federally permissible.
But what if Biden wins but Republicans hold onto their Senate majority? It's possible that cannabis stocks could bounce somewhat. However, the gains probably would be much smaller than they would be in the Democratic wave scenario.
...or a Biden bummer?
Recent national polls and polls in key swing states appear to give Joe Biden a lead in the presidential race right now. However, the betting markets favor a Biden win by a relatively narrow margin. There's a not-so-insignificant chance that the Democratic nominee will lose in November.
How would a Biden loss impact marijuana stocks? Many stocks would probably be hit pretty hard. I suspect that Canopy Growth would rank among the biggest losers. The company is anxiously awaiting the opportunity to enter the U.S. cannabis market. If Joe Biden fails in his presidential bid, that opportunity could be a lot farther down the road than Canopy would like.
Again, though, the extent of the negative impact would depend on which party controls Congress. It's possible that progress could be made toward reforming marijuana laws with President Trump serving four more years with a Democratic House and Senate.
There's even an argument that some companies in the cannabis industry might breathe a sigh of relief if Biden loses. For example, Innovative Industrial Properties (IIPR 4.48%) currently doesn't have much competition in providing real estate capital to medical cannabis operators. It's possible, and perhaps even likely, that more companies would enter this market if medical cannabis was legal at the federal level.
Winning either way
Keep in mind that quite a few marijuana stocks are performing well despite cannabis remaining illegal at the federal level. GrowGeneration (GRWG 20.44%) ranked as the best-performing marijuana stock in the first half of the year and still soared another 89% last month. Shares of Innovative Industrial Properties and Green Thumb Industries are up more than 50% and 25% year to date, respectively.
Even if the November elections keep the status quo for the cannabis industry, GrowGeneration, IIP, and Green Thumb will still have tremendous growth prospects. Of course, GrowGeneration and Green Thumb would be surefire winners if the election results improve the chances of marijuana legalization. I think that IIP would also benefit. While the company could face increased competition if medical cannabis is legalized in the U.S., it would also have a bigger potential market.
The bottom line is that some marijuana stocks should win regardless of what happens with the presidential race. Those are the stocks that stand out as the best picks for investors instead of betting on election outcomes.