Revealed: A Looming Catalyst That Could Send Cannabis Stocks Skyrocketing

There’s a potential boon for pot stocks like Canopy Growth Corp (TSX:WEED)(NYSE:CGC) that nobody is talking about.

| More on:
Cannabis stocks have fallen.

Cannabis stocks have lost their lustre of late, but the catastrophic implosion that accompanies a bubble bursts has yet to happen three quarters into year one of nationwide legalization.

While it may seem somewhat safer to invest in cannabis firms like Canopy Growth (TSX:WEED)(NYSE:CGC) now that they’ve had the opportunity to establish themselves in a post-legalization era, it’s important to remember that there are uncertain material side effects from mixing cannabis and politics.

Yes, political risk is returning to the world of cannabis as election day in Canada approaches.

Over the coming months, we’ll likely be learning more details from the Tories about their views of legal cannabis. Based on Conservative leader Andrew Scheer’s commentary on the matter thus far, a Conservative victory could potentially act as an overhang on pot stocks across the board.

Fortunately for cannabis investors, Scheer noted that his Conservatives “would not change the legal nature of cannabis“, but that “a lot of work” still needed to be done. The Conservative party’s decision to scrap the idea of potentially reverting the cannabis legalization shouldn’t have come as a big surprise, as such a move would have involved a tonne of paperwork for a negative return on investment. But what the “extra work” entails could act as an extra layer of uncertainty to an already ridiculously hazy industry.

Scheer’s Conservatives are considering “adjusting” some of the rules, and given the negative commentary on cannabis legalization that Scheer and the Tories have expressed in the past, I’d say such adjustments may act as a double-edged sword.

Today, legal cannabis sales are highly regulated with minimal branding on packaging and those red warning stickers placed on all legally sold products. And in a Tory victory, I’d say such an “unrelaxed” framework will remain throughout Scheer’s mandate.

Given that Scheer is no fan of cannabis in general, investors may perceive a Conservative victory as a reason to sell shares. But I think there are material benefits to pot firms should Scheer decide to modify (or potentially scrap) the rule that allows households to grow up to four cannabis plants.

There’s no question that household growth is a spark for Canada’s cannabis black market. So, any such efforts to hinder the black market would be a boon for cannabis producers, as they win back some of the business that’s been lost to the black market. Of course, the boon may be offset by a decision to crank up taxation, so investors will need to brace themselves for material headlines and the return of ridiculous amounts of volatility in both directions.

It’s tough to gauge just how large the magnitude of moves will be in response to political headlines, but one thing is sure: the move, whether positive or negative, will be exaggerated.

Pot stock valuations across the board remain overly frothy, and that froth may easily be wiped out in the meantime, but as political commentary dictates the trajectory of stocks once again, I see opportunities for traders to make quick profits.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Cannabis Stocks

Powder of Cannabis (Drugs), Analysis of Cannabis in laboratory.
Cannabis Stocks

Canopy Growth: Is There Budding Potential in the Cannabis Market?

Canopy Growth stock hit 52-week lows recently on news of needing to re-file on its BIoSteel business, so what now?

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

What’s Happening With Cannabis Stocks in May 2023?

Cannabis stocks were up this week, as the market began to turn, but how long will it last, and is…

Read more »

Cannabis smoke
Cannabis Stocks

Are Cannabis Stocks a Good Buy in May 2023?

If you're going to buy cannabis stocks, these are pretty much the only two I would consider. Even so, you…

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Aurora Cannabis: Time to Light Up Your Portfolio?

Here's my take on whether Aurora Cannabis (TSX:ACB) is worth adding to a growth portfolio right now, given its growth…

Read more »

Target. Stand out from the crowd
Tech Stocks

These Undervalued TSX Stocks Are a Bargain in May 2023

If you're willing to bet on a rebound, these are the three TSX stocks I would consider first as they…

Read more »

A cannabis plant grows.
Cannabis Stocks

Tilray Stock Is Scraping 52-Week Lows: Will it Bottom Out Soon?

Tilray (TSX:TLRY) stock remains down 53% in the last year, but when will this company hit the bottom and start…

Read more »

Medicinal research is conducted on cannabis.
Metals and Mining Stocks

2 Canadian Stocks That Are Simply Too Cheap to Avoid

These two Canadian stocks have sunk lower and lower, which is why now could be the right time for long-term…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

1 Marijuana Stock I’d Buy Over Aurora Cannabis

Explore a promising marijuana stock that outshines Aurora Cannabis. Unveil the investment opportunity to boost your cannabis portfolio.

Read more »