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Pot Stock Rally Loses Steam As Multiple Names Tumble

Feb. 17, 2021 4:41 PM ETTilray Brands, Inc. (TLRY)SNDL
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Cannabis stocks have been trending higher for months, but they received a massive bump when users of the Reddit forum WallStreetBets started snapping up their shares rapidly.

Why the pot stock rally might not be over

Tilray, Canopy Growth, and Aurora Cannabis were among the pot stocks that received a boost from Redditors, but shares of all three were declining on Wednesday. Tilray fell by about 7% ahead of its next earnings report, while Canopy Growth was off by almost 4%, and Aurora Cannabis plunged 7%.

Even though the Reddit-driven rally seems to have lost its steam, there is another reason to expect marijuana stocks to start rising again. Democrats have taken control not only of the White House and House of Representatives but also of the Senate. The Democratic agenda is heavily tilted in favor of legalizing recreational marijuana, which would help cannabis companies.

This week, three Democratic senators promised to pursue major reforms in cannabis legislation. They said they would release a "unified discussion draft on comprehensive reform early this year" and that passing the legislation will be "a priority for the summit."

Opportunities for other cannabis companies

The current environment also presents opportunities for companies like Cannabox, which offers subscriptions to boxes of cannabis accessories. Founder and CEO Michael Berk said they had seen an unprecedented number of customers being added to their base.

They're also raising funds through regulation crowdfunding so they can go public through a merger with a special purpose acquisition company (SPAC) or acquisition. Berk said the possibility of legalization is a boon for the sector.

"As active investors in the cannabis space, some notable names like TLRY, CGC, SNDL and APHA are having a small moment in price movement due to not only an increase in retail investors but a possibility of legalization," Berk said. "Once legalization hits, the current restrictions in cannabis like marketing, banking, public events, and more, will cease to exist and will seriously allow the U.S. cannabis space to grow."

Don't get ahead of yourself

Whether the U.S. legalizes marijuana at the federal level or not, it's important to realize that some investors may be getting ahead of themselves by loading up on pot stocks right now. After all, President Joe Biden isn't as friendly to marijuana use as most other Democrats are.

The Motley Fool noted last year that he campaigned on rescheduling pot as a Schedule II controlled substance instead of a Schedule I substance with no medical benefits. Making marijuana a Schedule II substance would pave the way for increased medicinal use.

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