The marijuana industry has been a bright spot in the US economy, with sales of cannabis products reaching $6.7 billion in 2017 and projected to grow to $50 billion by 2027. As the marijuana market continues to expand, many investors are looking for opportunities within the sector.
The will legalization significantly change demand how is a question that has been asked for a while now. It is hard to say if marijuana stocks will be immune to the pandemic-related supply chain issues.
Are COVID-19 Issues Still a Threat to Pot Stocks?
While COVID-19 seems to be (mercifully) on the decline—at least in terms of severe cases—this does not imply that everything will suddenly return to normal. There will be long-term ramifications, which may have an effect on marijuana stocks.
Supply chain disruption is one such long-term effect.
A scarcity of semiconductors, for example, has started to wreak havoc in a number of sectors, most notably auto production. (Source: The Hill, YouTube video, February 25, 2021, “Saagar Enjeti: A Story of How Elites Sold Us Out and Trump Did Nothing About It.”)
Traveling and transporting products across nations will become considerably more difficult if COVID-19 safeguards are in place (and are expected to be in force for years). Furthermore, overcrowding in industries and resource exploitation sites may lead to outbreaks.
All of this has resulted in a very vulnerable global supply chain.
Consider that the cost of transporting a container from Asia to Europe is now approximately ten times what it was in May 2020. Shipping from Shanghai to Los Angeles has risen sixfold in price. (Source: Bloomberg, August 25, 2021, “The World Economy’s Supply Chain Problem Keeps Getting Worse.”)
The global supply system has grown so vulnerable, according to HSBC Holdings Plc (NYSE:HSBC), that a little mishap “could quickly compound its effects.” Ibid.) (Source: Ibid.)
You may be asking what all of this has to do with marijuana stocks.
Pot businesses, like every other company in our worldwide market, need raw materials, technology, and access to resources.
Furthermore, as I’ve shown in prior articles, cannabis stocks have been especially susceptible to economic slowdowns caused by pandemics. If a fresh delay occurs as a result of supply chain problems, stock values may suffer.
However, there is plenty of positive news for marijuana stock investors.
As seen in the figure below, marijuana stocks have achieved significant gains over the last 12 months, all of which have occurred during the COVID-19 epidemic.
StockCharts.com provided the chart.
We’re witnessing a fresh rush of excitement for marijuana stocks, given how damaged many cannabis companies were when the epidemic hit and how robust they’ve shown to be since then.
After all, at the start of the pandemic, marijuana was one of the first sectors to suffer significant stock price drops. In other words, they’ve already gotten the better of COVID-19 and are still standing.
That is very encouraging for the future. Not only does the resilience demonstrate that marijuana stocks can recover from pandemic-related downturns, but it also makes future share-price drops less probable.
Why? Panic was what caused cannabis stock prices to fall in the first place, and it’s less likely to happen this time.
Faced with a once-in-a-generation epidemic, investors were keen to stock their portfolios with safe-haven investments and other assets that would be more reliable in times of economic instability.
Investors will be less inclined to jump ship if we find themselves in another epidemic now that they have evidence that marijuana equities can survive a volatile market.
The second and more important piece of positive news regarding marijuana stocks is that, although supply chain problems will have an effect on cannabis companies, it will be minor in comparison to the impact on other sectors.
This is due to the fact that there isn’t much of a worldwide legal marijuana commerce (yet). The majority of the product is produced, processed, and marketed in local markets; marijuana is not yet transported abroad.
This is owing to significant legal limitations, but even in the United States, where hundreds of millions of people now have legal access to marijuana, marijuana businesses are unable to lawfully transport their products over state borders, much alone internationally.
Because the federal government is in charge of state boundaries, the federal ban on marijuana also extends to interstate commerce.
While the United States is nominally under federal authority, the federal government’s marijuana policy has been lax. Within their boundaries, states may regulate marijuana as they see fit, but the substance remains illegal in the eyes of the federal government.
Marijuana markets all around the world have had to build strong, self-contained ecosystems as a result. As a result, those markets have gained some protection (but by no means complete immunity) from supply chain problems.
In other words, investors shouldn’t be too worried about the pandemic’s potential to wreak havoc on our economy. Marijuana stocks are expected to survive the storm and emerge even stronger on the other side.
We no longer live in the same world as we did before the COVID-19 epidemic.
Many changes have been imposed upon us by the virus, and many of them will be permanent. Pot stocks, on the other hand, have shown that they can withstand the worst of the pandemic’s effects.
Furthermore, one of the most worrisome post-pandemic economic hangovers, supply chain disruptions, is less likely to have a significant effect on cannabis companies.
All of this makes me optimistic about marijuana stocks.
The black market and drug legalization is a hot topic in the cannabis industry. With the current supply chain issues, marijuana stocks may not be immune to these problems.
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