Cannabis stocks are going nowhere, this portfolio manager says

If you’re into cannabis stocks, you’ve been watching your investments dwindle over the past two years, as interest in the still-growing sector has dried up faster than, well, a gram of flower left out overnight. 

Is it time to cut your (potentially huge) losses and move onto better terrain? Not necessarily, says Larry Berman of ETF Capital Management. Berman thinks pot stocks will rise again eventually, but it could take a while for that payday to come around.

“The explosive moves that we saw in the marijuana names as [US President] Biden was taking over the White House and there was a lot of speculation about legalizing and banking reform in the US, that just hasn’t come,” said Berman, speaking on a BNN Bloomberg segment on Monday.

Cannabis companies both in the US and Canada saw their share prices rise sharply over the last quarter of 2020 and into the first two months of 2021, but the Democrat-in-the-Whitehouse honeymoon was soon over and investors and companies in the US were faced with the grim reality of how difficult it would be to move forward on federal legalization in the US. 

At the state level, things have been humming along very well, with more states legalizing pot for either medical or adult use and so-called multi-state operators (MSOs) building out their empires of production, distribution and retail across the country. 

But those same companies still face significant hurdles in terms of banking and capital investment, prevented by the fact that marijuana remains a Schedule 1 narcotic at the US federal level. There were rumblings this past fall from President Biden about eventually having that status changed, but that may still be a ways off.

Meanwhile, here in Canada the legal weed industry is maturing and consolidating, while over-supply remains an issue and dream companies like Canopy Growth, Aurora Cannabis and Cronos have scaled down operations in attempt to become profitable.

All that makes for a lot of wait-and-see for the industry and for investors. But Berman says there’s light at the end of the tunnel — it’s just not clear when we’ll get there.

“I do think when it turns we’re going to have a very, very nice rally,” Berman said. “And the question then is the timing of it and right now there’s not a lot of political will there. It may take something closer to the next US presidential election before something gets done and that means we have some time here.”

“So, I’d be accumulating on some of the names you like, but I’m not sure other than very short term rallies whether we’re going to get anything meaningful at this point,” he said.