How High Can Marijuana Stocks Get on Biden Presidency?

There will likely be plenty of opportunities to capitalize on volatility in both directions in the weeks and months to come...

Commodities 1

Three months ago, we identified marijuana stocks as potential winners under a Biden presidency, noting that, “[r]elative to some of the more liberal Democratic candidates, Biden is seemingly lukewarm toward recreational marijuana, but the prospects of full legalization are nonetheless better under Biden than Trump, especially if the House of Representatives and/or Senate is also under Democratic control. In that case, stocks like Canopy Growth (CGC), GW Pharmaceuticals (GWPH), Curaleaf (CURL), Cronos Group (CRON), and Aurora Cannabis (ACB) could catch a bid…”

While not necessarily unique or profound, this perspective has aged well. At one point on Monday, the “Alternative Harvest” ETF (ticker MJ) had surged 33% in less than a week from its pre-election price, and the industry bellwether is still trading up by about 13% from its November 3rd close:

Source: TradingView, GAIN Capital

From a technical perspective, MJ has seen its 21-day EMA cross above its 50-day EMA, signaling a possible shift to a medium-term uptrend (though we did see a similar bullish crossover sputter out back in Q2). The RSI likewise reached “overbought” territory above 70 for the first time since June at the start of the week, a bullish sign from a medium-term perspective.

Drilling down into the top holdings, Canopy Growth (CGC), Tilray (TLRY), Cronos Group (CRON), and Aurora Cannabis (ACB) all saw similar bullish spikes late last week before pulling back so far this week. Moving forward, bullish-inclined traders may want to consider buy entries near the confluence of moving averages if prices continue to pull back, with Aurora Cannabis (ACB) showing notably higher volatility than the other top holdings and therefore offering potentially higher risk and reward for traders comfortable bearing that risk.

Source: TradingView, GAIN Capital

At the risk of being a buzzkill (pun intended), there’s a risk that these marijuana stocks have gotten ahead of themselves. Though the prospects of federal legalization in the United States are certainly rosier under a Biden Presidency than they would have been under Trump, it’s notable that Democrats will likely not have a majority in the US Senate (pending the results of two runoff Senate elections in traditionally red Georgia), so it may be difficult for Democrats to enact their full agenda. And, even if federal legalization is passed in the coming years, there remains a risk of a “buy the rumor, sell the news” reaction in marijuana stocks.

Unlike the lethargy that its ultimate product produces in users, this nascent industry is surrounded by giddy excitement on the part of investors, so there will likely be plenty of opportunities to capitalize on volatility in both directions in the weeks and months to come, regardless of how the federal legal battle shakes out.


More from Equities

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.