Cannabis Stocks 2021: Will U.S. Legalization Spark a Bull Market?

The prospect of legalization in the United States has sparked a run for cannabis stocks that may lead to a prolonged bull market.

| More on:

Canadians were forced to hunker down for most of 2020 in the face of a devastating global pandemic. Alcohol and cannabis consumption rose in comparison to previous years. When new restrictions and lockdowns sprouted in March 2020, I’d discussed whether cannabis stocks could benefit from this new environment. Sales spiked in the spring months across Canada, but a second wind for cannabis stocks failed to materialize.

I’m going to discuss the recent run for equities in the cannabis space. New developments may lead to a bull run for cannabis in 2021. Today, I want to discuss some of those factors and determine whether investors should jump back into this volatile space.

Why cannabis stocks are picking up momentum

In the lead up to the United States presidential election, I was bearish on cannabis stocks. Incumbent Donald Trump had been ambivalent on the question of federal legalization during his reign. Now President-Elect Joe Biden was historically against cannabis legalization. Of course, politicians are known to change their stances when it is expedient. John Boehner, the former Republican Speaker of the House, was ardently anti-cannabis during most of his political career. Now, he’s a stern advocate and sits on the board of Acreage Holdings, a New York-based cannabis company.

Biden has significantly softened his rhetoric on cannabis. He has cast his support for medical cannabis legalization. There is widespread support for a legalization push among the Democrats. The path to legalization is now open with the Democrats winning a majority in the U.S. Senate.

Is U.S. legalization on the horizon?

There are still obstacles to cannabis legalization in the United States. Democrats will have their hands full tackling the ongoing COVID-19 pandemic as well as a devastated economy. Moreover, the fallout from the election has strained America’s social fabric. This could put cannabis legalization on the backburner in 2021.

Still, there is a lot of optimism for cannabis’ industry leaders. Canopy Growth (TSX:WEED)(NYSE:CGC) CEO David Klein recently predicted that the cannabis giant will be operating in the United States in roughly a year. The company’s shrewd partnership with Acreage back in 2019 meant that it would have a significant leg up on its peers. Shares have climbed 22% in 2021 as of close on January 8. The stock has increased 65% over the past three months.

Two cannabis stocks to watch in 2021

Canopy Growth is a no-brainer as far as cannabis stocks go. The U.S. market is nine times the size of its Canadian counterpart. This means that Canopy will turn nearly all its attention to our southern neighbour. Moreover, Canada’s legalization push has not been the friendliest to private enterprise. Provincial plans often differed greatly, and some political leaders worked to hamstring retailers. This led to a chaotic and disappointing rollout.

Aurora Cannabis (TSX:ACB)(NYSE:ACB) is also positioned to benefit from U.S. legalization. The company swung for big acquisitions before Canada’s official legalization date. A shortage has transitioned to a supply glut, which has been bad news for Aurora’s bid to outproduce its competitors. It hopes that access to the gigantic U.S. market will provide the boost this cannabis stock sorely needs.

Shares of Aurora have increased 19% in 2021. The stock has shot up 88% in a three-month span. Canopy has a distinct advantage with its Acreage and Constellation Brands partnerships, but U.S. legalization is still very good news for Aurora. The next year could see a second boom for cannabis stocks.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands.

More on Investing

hand stacks coins
Dividend Stocks

Canada’s Smart Money Is Piling Into This TSX Leader

An expanding and still growing industry giant is a smart choice for Canadian investors in 2025.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Energy Sector Strength: A Canadian Producer That Can Thrive in Any Market

While gold stocks are the norm, relatively few Canadian energy stocks operate primarily outside the country. The ones that do…

Read more »

how to save money
Stocks for Beginners

Canada’s Biggest Winners in 2025? My Money’s on These 2 TSX Stocks

Here’s why I’m betting on these TSX stocks to be among Canada’s biggest winners in 2025.

Read more »

ways to boost income
Investing

Where to Invest Your 2025 TFSA Money for Total Returns

These TSX stocks offer high growth and steady dividend income, making them top bets to generate solid total returns.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Contribution Limit Stays at $7,000 for 2025: What to Buy?

This TFSA strategy can boost yield and reduce risk.

Read more »

calculate and analyze stock
Investing

3 No-Brainer TSX Stocks Under $50

These under-$50 TSX stocks have solid growth potential and can deliver significant returns over time, beating the benchmark index.

Read more »

Make a choice, path to success, sign
Dividend Stocks

Already a TFSA Millionaire? Watch Out for These CRA Traps

TFSA millionaires are mindful of CRA traps to avoid paying unnecessary taxes and penalties.

Read more »

A plant grows from coins.
Stocks for Beginners

1 Canadian Stock Ready to Surge In 2025

First Quantum stock is one Canadian stock investors should seriously consider going into 2025, and hold on for life!

Read more »