- Alaska and Oregon will be voting on the legalization of Recreational Marijuana on Tuesday, November 4, 2014.
- Investors may be considering trading marijuana stocks this election season, and it is important to understand the history of stock movements in similar scenarios.
- History may show mixed results; sometimes stocks respond to election results in a way that makes sense, but they are often unreliable.
There is a growing trend of increasing support for both medical and recreational marijuana legalization among Americans. So far only two states have legalized it; Colorado and Washington. After November, the number of states that have legalized use of recreational marijuana may double, as it is now up for a vote in Alaska and Oregon.
This raises the question, will it be a good idea to buy marijuana stocks before the election as a gamble on a binary event, and which marijuana stocks represent the best play on this event?
What History Tells Us:
A company known as MedBox (OTCQB:MDBX), which makes vending machines for marijuana products, soared over 3,000% in November 2012 upon the results in Colorado and Washington. It was such a big hit that it even got the company's leadership to discourage investors from buying their stock. Perhaps in part, why the stock soared so much, was due to influence by a MarketWatch article promoting the stock.
However, MedBox may be alone in its group that achieved big gains during that period. Most of the other widely-known marijuana stocks in the U.S. such as GrowLife (OTC:PHOT), Terra Tech (OTCQB:TRTC), Cannabis Science (OTCQB:CBIS), and Medical Marijuana Inc. (OTCPK:MJNA), did not see that level of big gains as marijuana became legal in Colorado and Washington.
Perhaps investors could try their luck with MedBox in hopes that history will repeat itself, but it tends to behave very randomly and may not have the same kind of hype it once had, as it has since crashed back down.
Another stock to consider is mCig Inc. (OTCQB:MCIG), a maker of electronic cigarettes/joints for recreational marijuana. MCIG didn't go public until after November 2012, so we don't have a prior precedent as to how it behaves in election outcomes.
Sometimes elections can have a great impact on certain stocks, when the opportunity presents itself. Health care stocks such as HCA and THC soared approximately 9% on the day after President Obama's re-election, while the rest of the stock market plummeted.
The Focus Should be on recreational U.S. pot stocks, not International and not medical marijuana:
It's hard to imagine how some marijuana stocks will directly benefit from the election results in Alaska and Oregon if their operations focus in other countries. Creative Edge Nutrition (OTCPK:FITX), though based in Michigan, appears to focus its operations on Medical Marijuana in Canada. It isn't a direct-play on recreational marijuana in the United States. Same concept goes for GW Pharmaceuticals (NASDAQ:GWPH), which is based in Britain. Although it may have potential to expand into the United States, I would focus on direct plays on Alaska and Oregon rather than companies with international exposure. While these stocks may get a lot of attention from the media, it is important to understand their relationship specifically to the ongoing elections in the United States.
There used to be an easier way to do this:
As recently as two years ago, investors didn't need to pick stocks to make bets on election outcomes. There was a Prediction Market known as Intrade which allowed investors to bet large sums of money directly on the election results without having to interpret the election's impact on the stock market. Intrade has since shut down and restructured due to internal problems and CFTC sanctions. Now in a post-Intrade world, investors have an increased level of risk when making such bets, as it requires not only predicting the election's outcome, but assessing the election's impact on the stock market.
Summary and Conclusion:
As history shows us, sometimes elections can have significant impacts on stocks. However, it is often unpredictable and there is really no way of knowing which stocks will benefit and which will not. If an investor seeks to gamble on this binary event, it may be a good idea to diversify among multiple marijuana stocks instead of betting their funds on one single company.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.