Marijuana stocks were the big stock market stars of February, thanks to a written pledge from three Democratic senators that, within months, they would start to push through marijuana reform at the federal level. But quick reform could lead to a wide open market, and a flood of available product, which would drive prices down and consequently batter the fundamentals of pot companies.
In this Motley Fool Live clip, recorded on Feb. 5, veteran Motley Fool contributor Eric Volkman and healthcare and cannabis bureau chief Corinne Cardina talk about how the bull run could potentially lose steam because of such developments.
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Corinne Cardina: Fran asks, "Is this bullish run on cannabis stocks that I talked about because of the democratic senator's plan, is it just because of the news? Can we expect the market to be completely flooded with products once the new cycle excitement dies down, thus dropping stock values again as seen with cannabis situation?"
The reason I picked out this question is because I think it's interesting to compare the U.S., where we are in the cycle. I think anyone who's been following cannabis stocks for a few years remembers the hype that led up to legalization in Canada, and then the crash when all sorts of problems came together. We had oversupply, a lot of the provinces have trouble getting licenses quickly.
What do you see compared to the U.S. as we inch toward legalization? How would you compare that to what happened in Canada?
Eric Volkman: Well, first of all, it's not going to be on a nationwide basis, I really don't think. Again, I think what's going to happen at the Federal level with legislation is that it's essentially going to open the states to do whatever they want.
Because of that, you're going to see a form of what we had these past couple of years, like the piecemeal state-by-state approach. Some [states] will open, some of them won't, some of them will put it to a vote, some of them will mandate it from the top down like New York, I suspect that'll happen there.
Because of that, it's going to go in fits and starts. Some states will be very quick and very effective about that. I'm thinking about Illinois which I think did it in a pretty good way. They opened their market fairly quickly. Even from the beginning, they haven't been very bureaucratic about their licensing process, and a lot of dispensaries have opened their doors because of that.
It really depends on that. But I don't think you're going to see a flood. I don't think all of a sudden, the market is going to open wide and every one house on every block is going to be cultivating cannabis, and all of a sudden, the prices are going to plunge. It's going to be slower, it's going to be more piecemeal. I don't see any situation where all of a sudden, there's a big external shock, like a huge sudden oversupply, driving prices down and rocking the entire market, and cutting revenue and profitability.
I wouldn't be worried about that, necessarily. I would be more hopeful.