Cannabis sales are spiking in the age of COVID-19…
The coronavirus pandemic… and the lockdowns governments are responding with… has brutalized certain industries.
Restaurants and hotels are empty… airplanes are grounded… casinos have shut up shop… cruise bookings have fallen off a cliff.
But certain industries are bucking the trend… They’re enjoying more, not less, demand.
That spells opportunity for folks who can stay rational… remember to play offense as well as defense in a crisis… and buy quality stocks at “bargain-basement” prices.
I (Chris) have already showed you here how 5G stocks fit the bill. Today, I want to shine the spotlight on the legal cannabis industry.
As you’ll see, cannabis sales are spiking… right as cannabis company share prices are falling. And that makes it a perfect time to buy in.
Each week, thousands of new readers sign up for the alternative ideas and insights we publish at Legacy Research.
We consider these ideas more important than ever during the coronavirus panic.
As Legacy Research cofounder Bill Bonner says, “If you think like everyone else, you’re going to get returns like everyone else.”
It feels warmer and safer at the center of the herd. That’s where we naturally feel most comfortable – especially when fear is running high.
But studies show that the average investor consistently underperforms the market through poor decision-making.
My favorite study is from market data firm Dalbar…
As you can see, over a variety of time periods, the average equity investor has consistently underperformed the S&P 500.
The way to do better than the crowd is to think differently from the crowd.
The crowd has got this sector wrong. Sales are rising, but cannabis stock prices have fallen hard.
The Horizons Marijuana Life Sciences Index ETF (HMLSF) – a bellwether for the sector – is down 26% so far this year.
That’s more than our regular stand-in for the broad U.S. stock market, the S&P 500. It’s down just 11% year to date.
But here’s the thing… Scary headlines are burying hugely bullish news for the cannabis industry.
State legislatures are deeming cannabis businesses “essential”… just like grocery stores. And sales are booming.
Cannabis wasn’t legal back then on the scale it is now. So you can’t make an apples-to-apples comparison.
But the legal status of alcohol – another substance people use as an escape from reality – hasn’t changed. So its performance during the last financial crisis makes for an interesting comparison. It’s all in this next chart…
The U.S. economy entered a recession at the end of 2007. As it started to bite, alcohol sales (the blue bars above) shot up.
You can see the same thing play out on a state-by-state basis with cannabis sales in the current crisis.
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In March, California saw a 54% jump in cannabis sales compared to the same period a year ago…
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Figures from Akerna, a software provider for the cannabis industry, show that medical cannabis sales in Colorado jumped 57% over previous weeks in 2020…
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Michigan says it’s tracked a 25% jump in recreational and medicinal sales during March following the governor’s stay-at-home order…
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In Florida, which tracks weekly cannabis sales closely, 2020 sales are up more than 50% over last year…
It’s like the surge in spending we typically see ahead of hurricanes. People were stocking up on supplies ahead of stay-at-home orders.
As I mentioned up top, it’s a good proxy for the cannabis sector.
It invests in shares in 54 leading cannabis stocks around the world. And it’s lost about one-quarter of its value since the start of the year, as cannabis sales have spiked.
Until tomorrow…
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Chris Lowe
April 20, 2020
Dublin, Ireland