With both Harris and Trump backing federal marijuana reform, the cannabis industry seems poised for a breakthrough. However, despite the bipartisan support and the growing consumption of marijuana in the U.S., cannabis stocks remain volatile. Investors are left wondering: Will stocks go lower before they surge, or is this truly the beginning of a sustained growth period for the sector?
A Shift in Consumption: More Americans Prefer Cannabis Over Alcohol
Recent data reveals a historic shift: for the first time, more Americans report consuming marijuana than alcohol. According to a Gallup poll, 17% of U.S. adults reported using marijuana, surpassing the 16% who said they drank alcohol regularly. This trend is particularly strong among younger generations, with many preferring marijuana for recreational purposes over traditional alcoholic beverages.
This shift signals a growing consumer base for cannabis products, reinforcing the long-term market potential. As public acceptance of marijuana grows, so does the opportunity for cannabis companies to expand their market share and revenues. This demographic change could lead to higher revenues for companies well-positioned in both recreational and medical cannabis markets, such as Green Thumb (GTBIF) and Curaleaf (CURLF).
Why Cannabis Stocks Could Fall Before a Rebound
Despite this strong consumer trend, there are several reasons why cannabis stocks might still fall in the short term before rebounding:
1. Regulatory Delays: The DEA’s decision to delay rescheduling marijuana until after the 2024 election leaves the industry in a state of uncertainty. Although both presidential candidates favor reform, legislative action may not occur until well into 2025, creating short-term volatility in cannabis stocks.
2. Divided Congress: Even with bipartisan support at the presidential level, resistance within Congress—especially among certain Republicans and moderate Democrats—continues to slow progress on cannabis reform. Legislation like the MORE Act and SAFE Banking Act has attracted hundreds of co-sponsors but still faces obstacles in the Senate, where cannabis reform remains a divisive issue. The resulting delays in passing these bills could continue to weigh on stock prices.
3. Oversupply and Market Saturation: Some markets, particularly Canada and certain U.S. states, are experiencing oversupply and shrinking margins, particularly for lower-value cannabis products. Without federal reform, this oversupply could continue to hurt cannabis companies’ bottom lines, causing stock prices to dip further.
4. Economic Headwinds: The broader macroeconomic environment also impacts cannabis stocks. Rising interest rates, inflation, and tighter access to capital could restrict growth for companies in the cannabis sector, many of which are still in expansion mode. These pressures could cause stock prices to fall before the market stabilizes.
Long-Term Growth Potential: A Bull Market Ahead?
While short-term challenges persist, the long-term outlook for cannabis stocks remains bullish. The growing preference for marijuana over alcohol, coupled with federal legalization or rescheduling, could open up enormous opportunities for growth. Federal reforms, whether through rescheduling marijuana or passing banking legislation like the SAFE Banking Act, would unlock access to banking services, institutional investment, and interstate commerce. This could spark a bull market in cannabis stocks, driving significant gains for investors.
Short-Term Decline, Long-Term Gain?
Despite the growing number of Americans consuming marijuana and the support of both Kamala Harris and Donald Trump for federal reform, cannabis stocks could still face short-term declines due to regulatory delays, political uncertainty, and economic headwinds. However, with the shift in consumer preferences and the potential for federal reform, the long-term outlook for cannabis stocks is promising.
For risk-tolerant investors, this could represent a once-in-a-lifetime opportunity, but patience will be crucial. The market may go lower before it rebounds, and investors should remain prepared for continued volatility before the benefits of legalization or rescheduling fully materialize. The information here should not be considered investment advice. Always consult a licensed professional.