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Why American Investors Are Piling Into Canadian Cannabis Stocks

“Cannabis euphoria” is an established phenomenon in Canada affecting investors, the press and pot aficionados alike. And now it looks like Americans are starting to catch the bug. According to a recent report, American investors are piling into Canadian cannabis stocks in record numbers.

In fact, according to the report, American investors may be the main force behind the recent cannabis rally.

The report by Citron Research (which is generally hostile to cannabis companies) said, Despite obvious logic, we’ve seen U.S. retail investors pile into the U.S.-listed [Canadian] marijuana stocks.” The report also noted that The recent cannabis stock rally is a U.S. phenomenon fueled by retail investors.”

The boldness of the claim is striking. Not only are U.S. investors piling into Canadian cannabis stocks, they’re actually the main drivers of the rally. This would seem surprising, but when we look closer, it’s not.

Of Canada’s “Big Five” cannabis stocks, three have U.S. listings, putting them well within reach of U.S. retail investors who may be wary of investing on the Toronto Stock Exchange.

Media coverage: a big influence

Not only that, but these stocks are getting a lot of media attention from some of the biggest newspapers and magazines in the world, which shouldn’t be overlooked. Media coverage can absolutely influence a stock’s price–at least in the short term–regardless of how the underlying asset performs.

A study by Joanna Strycharz, Nadine Strauss and Damian trilling found that the amount and sentiment of media coverage for a stock correlates positively with its price. In plain English: stocks that get lots of positive coverage see their share prices go up–at least in the short term.

And there was one such “coverage event” that brought Canadian pot stocks to the attention of Americans: Constellation Brand‘s $5 billion investment in Canopy Growth Corp (TSX:WEED)(NYSE:CGC). This was one of the biggest M&A announcements of the year, and it received coverage in all the major financial papers.

Not only that, but it ignited a huge rally in cannabis stocks that itself became the focus of major media coverage. No doubt these developments have influenced Americans’ willingness to buy Canadian cannabis stocks.

The best available options

But it’s not just hype that’s driving Americans to Canadian cannabis stocks. Another factor is the simple fact that Canada dominates the Cannabis sector. Of the three largest cannabis companies in the world, two are based in Canada. Those are Canopy Growth Corp and Aurora Cannabis Inc  (TSX:ACB). Many more Canadian companies round out the top 10.

Simply put, if Americans want to invest in the world’s largest cannabis stocks, the most obvious options are Canadian companies.

A final point to consider

Americans are no strangers to legal cannabis themselves. Recreational cannabis is legal in nine American states, while medical cannabis is legal in 30. In other words, legal cannabis is now a major part of the U.S. economy — with Canadian companies supplying much of it.

Ultimately, American investments in Canadian pot stocks may be bets on the future of pot in America, more than anything else.

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Fool contributor Andrew Button has no position in any of the stocks mentioned.

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