Cannabis stocks are about to go mainstream – and the shares you own today are going to be worth a whole lot more money…
Cannabis reform is now officially a congressional priority.
On Monday, three Senators – Chuck Schumer (D-NY), Ron Wyden (D-OR), and Cory Booker (D-NJ) – told the world in a joint statement that they plan to issue draft cannabis legislation in the coming weeks.
And with Democratic control of the Senate, I have no doubt that that legislation will pass.
As I’ve insisted all along, cannabis legalization isn’t about the president. It’s about the Senate. To progress the various cannabis bills that passed the U.S. House of Representatives, control of the legislative agenda needed to be taken out of the hands of Mitch McConnell (R-KY).
Once that control was determined in the Georgia run-off election in early January, I told you legalization was imminent.
And this announcement provides even more proof that legal cannabis will soon be the law of the land.
Now, whatever form that final bill takes, one thing is for certain…
Once it becomes law, United States cannabis companies – the multistate operators (MSOs) that we write about all the time – will start trading on the New York Stock Exchange (NYSE) and Nasdaq.
And that, my friends, is the true key to realizing all the incredible value that cannabis companies possess.
I’m talking about turning a $75 billion industry into one worth hundreds of billions of dollars. It’s so powerful that I’m betting cannabis company market caps could even reach a combined $1 trillion in a couple of years.
And that means triple-digit gains for anyone owning the right cannabis stocks today.
But before I clue you in on how to find the right cannabis stocks, let me show you exactly why the NYSE and Nasdaq are such powerful catalysts for you…
The Bigger the Audience
To maximize the value of its stock, a company needs an audience.
It needs as many eyes as possible examining the full extent of its business. The more individuals it has digging into its revenues, cost of operations, and profits, the more likely the true prospects of the company will be realized.
Those prospects could justify a higher or lower stock price depending on circumstances. But the intense scrutiny that comes from a large audience gives rise to another benefit: liquidity.
Liquidity can mean a lot of things, but today, I’m specifically referring to the ability to buy or sell a large number of shares.
The bigger the audience, the greater the number of buyers and sellers at any given price.
And today, the NYSE and Nasdaq trade more stock than all other stock markets combined.
The value of all stocks on all stock exchanges around the world totals $97 trillion and, as you can see in the graph, well over half of that value trades on U.S. exchanges:
Source: Seeking Alpha, Statista
Other markets don’t even come close. The next largest, Japan, makes for less than 8% of the total value of stocks traded on all exchanges.
So, you can see how U.S. exchanges draw a big audience. And of the $53 trillion in value listed on U.S. exchanges, nearly all – 88%, in fact – trades on either the NYSE or Nasdaq.
But the dollar value of the companies that trade on exchanges makes for just part of the picture.
The Bigger the Stock Value
The other part is the dollar value of the stocks that change hands each day.
This is the “liquidity” I talked about earlier, and the following chart compares how much stock trades each day on the NYSE, Nasdaq, the OTC markets (or pink sheets as they were once called), and the Canadian Stock Exchange (CSE).
Source: CBOE, OTC Markets, Canadian Stock Exchange (CSE)
Clearly, the NYSE and Nasdaq dominate. They have, by far, the largest audience. And that audience can make some very big moves into stocks.
I’m talking hundreds of billions of dollars a day compared to a couple of billion dollars on a good day for the OTC markets, and far less than that for the CSE.
But, so far, U.S. cannabis companies have largely been locked away from such a big audience.
Because cannabis is still a federally illegal substance, the NYSE and Nasdaq have shied away from any plant-touching U.S. operators.
And the small audiences dealing on the OTC and CSE have kept stocks of leading U.S. cannabis companies trading at much lower prices than they otherwise would.
Just look at seven of the top publicly traded cannabis companies operating in the U.S. today.
They all generated revenue between $100 million and $700 million in 2020, and they all grew revenues between 140% and 400% – at least.
But despite this phenomenal growth, their market caps average less than eight-times sales.
Were you to look at companies trading on the NYSE or Nasdaq with comparable levels of revenue, growing those revenues at least 20% (no companies are growing revenues like cannabis companies), those valuations jump to an average of over 33 times.
Now, once Congress passes cannabis legislation, that leap in valuation is exactly what we’ll see in cannabis as U.S. companies migrate to the NYSE and Nasdaq.
And U.S. cannabis sales growth will only accelerate from current levels as federal legalization eases the transition from medical to recreational use for individual states.
Don’t forget that 80% of any market goes to 20% of the companies, either. So, revenue for the top MSOs will grow leaps and bounds faster than for most cannabis companies as they widen the lead over their competitors.
Under these conditions – soaring sales and higher sales multiples that the NYSE and Nasdaq unlock – Trulieve’s stock could easily trade 10X higher than its current $43 price tag.
Jushi could be trading 20X to 30X higher than its current levels.
And one up-and-coming player we just recommended to our NICI Membership subscribers be 60X to 100X higher as the inevitable effects of legalization play out in cannabis, provided it maintains its trajectory as I expect it will.
You could own this name, too. Because, for our NICI Membership subscribers, we tell you exactly which cannabis stocks to own and when to own them for the biggest potential gains this industry has to offer.
That way, once the gates of the NYSE and Nasdaq open up to cannabis stocks, you’ll be in a great position to watch the growing audience around cannabis send the value of your shares of the top MSOs to the moon.
Executive Director, National Institute for Cannabis Investors
4 responses to “The Bigger the Audience Is for Cannabis Stocks, the Bigger the Gains Are for You”
February 03 2021