If you're not buying shares of companies that are likely to succeed in the long term during this (short-term) bear market, there's a good chance that fear of losing your money is getting the better of you. Of course, when your fear of losing money is getting in the way of making more in the future, it's a bit of a self-fulfilling prophecy, and preventing that outcome is one reason right now might be a brilliant time to start investing more heavily in beaten-down cannabis stocks.
That's right, even with the industry-tracking AdvisorShares Pure U.S. Cannabis ETF down by more than 66.5% compared to the market's decline of only 16.4% in the last 12 months, marijuana companies could still go on to flourish in the coming years, making the investors who are brave enough to buy shares during this bear market into richer versions of themselves. There are (at least) two big arguments in favor of buying pot stocks right now, so let's take a beat to understand both.
Valuations are at rock bottom and still falling
Especially if you like a bargain, there's no time like the present for finding cannabis stocks with cheap valuations. The Nasdaq's price-to-sales (P/S) ratio is currently 4.9. With that figure in mind, take a look at this chart of the marijuana industry's leading companies like Tilray Brands, (TLRY) Cresco Labs, and Canopy Growth:
TLRY PS Ratio data by YCharts.
As you can see, shares of all of these businesses are selling for significantly lower than the Nasdaq's average. Plus, as a result of plummeting stock prices, all of them are much less expensive per dollar of revenue compared to this time last year, never mind the cannabis stock heyday of early 2021.
What this means is you'll likely be getting more for your money when you invest in cannabis than you might be with an investment in another growth industry. For example, in biopharma, the average P/S multiple is 5.3, so cannabis looks especially inexpensive.
Legalization is inching closer to reality in major markets
The other major reason to invest in marijuana stocks during the bear market is that marijuana legalization may be on the way in both the U.S. and the E.U. On Oct. 6, the Biden Administration released a statement announcing the intent to pardon federal convictions for marijuana possession. The statement also directed the attorney general and the secretary of the Department of Health and Human Services (HHS) to review whether marijuana, which is currently classified as a Schedule I drug just like heroin, is appropriately scheduled. If authorities find that cannabis is inappropriately scheduled given the scale of its social and health impacts, it could lead to huge steps forward in federal decriminalization or perhaps even outright legalization, both of which would be positive for cannabis stocks, to say the least.
In the E.U., both Malta and Luxembourg legalized cannabis in late 2021. Excitingly, Germany is working to legalize the plant for recreational use, and its government intends to be done drafting the relevant laws and regulations by the end of 2022 or perhaps in early 2023. Currently, its medicinal market is served by multinational cultivators like Tilray, which is an active partner in the policymaking process.
So, buying shares of Tilray right now might be a favorable way to get a bargain and position your portfolio to gain from legalization there at the same time, and the same is likely true for investments in other cannabis businesses that aspire to penetrate the E.U. market, like Aurora Cannabis. The catch is that you'll need to tough it out during the remainder of the bear market, and there's no telling precisely when it'll end.
Just remember: The depressed valuations of today are likely to adjust upward when major markets open for recreational sales for the first time. If you're not willing to take a chance on cannabis stocks today, the chances of getting a similarly appealing combination of events and trends in the future will be much lower.
