Cannabis stocks listed on the Nasdaq continued to rally after voters ended prohibition and approved the recreational use of marijuana in California, Massachusetts, Maine and Nevada.
Cannabis stocks listed on the Nasdaq continued to rally on Wednesday after voters ended prohibition and approved the recreational use of marijuana in California, Massachusetts, Maine and Nevada while Arkansas, Florida and North Dakota adopted medical marijuana laws.
Arizona rejected its measure for recreational use while Montana voters approved a measure to improve access to medical marijuana providers.
"Whether they live in blue or red states, voters have spoken in an overwhelming majority that they want media and recreational marijuana," said Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader and investor known as @WolfofWeedST on Twitter. "One election night we witnessed not just a political shift, but a paradigm shift for cannabis where prohibition has become untenable."
Interest in cannabis-related stocks continues to increase from micro cap to Nasdaq-listed equities and will only continue its upward trend as investors should be poised for several decades of additional expansion as more states legalize either recreational or medical use and could emerge as acquisition targets.
"The legal cannabis movement scored its most significant victory yet," said Michael Berger, a former Raymond James energy analyst and founder of Technical420, a Miami-based company that conducts research on cannabis stocks. "Although the results of the election will be a turning point for the legal cannabis industry, we are only in the first inning of what will be a multi-decade growth cycle. As legalization measures continue to go into effect, market sentiment will improve for cannabis stocks and this should serve as a catalyst for many companies."
The economic impact for these states is immense - California is estimated to increase to $10 billion market by 2020, while Florida's medical market should be a $1 billion industry by 2020, he said.
"I expect the cannabis industry to be a $75 billion dollar industry by 2020," Berger said. "Although many people's estimates are below this, I take into account more than just the sale legal cannabis because the ancillary business will benefit significantly."
Several stocks have been undervalued as investors were skittish and the use of drugs produced by major cannabis-focused biopharmaceutical companies have not been widely adopted. The current options for mainstream investors in this budding sector are limited to a handful of companies listed on the Nasdaq, including GW Pharmaceuticals (GWPH) , a U.K.-based biotech company with a cannabis-based epilepsy drug; Insys Therapeutics (INSY) , a Phoenix company known for its cancer pain management drug but is developing a cannabis-based drug for the treatment of epilepsy; Cara Therapeutics (CARA) , a Shelton, Conn.-based clinical state biopharmaceutical company that develops and commercializes pain relief drugs and Zynerba Pharmaceuticals (ZYNE) , a Devon, Pa.-based company focused on developing and commercializing synthetic cannabinoid therapeutics.
Being undervalued means many of these companies such as Cara, Zynerba and GW Pharmaceuticals are also attractive acquisition targets, said Spatafora. All three companies are appealing candidates because of their intellectual property and their pipeline of current and upcoming drugs.
"The intellectual property for GW Pharmaceuticals is based on having cannabis plant-based drugs rather than synthetic alternatives and in my estimate is worth $6 billion or roughly $190 per share if bought out," he said.
Since GW Pharmaceuticals is the bellwether company of the cannabis industry and tends to benefit from positive developments in the sector, the stock could be poised for headwinds as a result from the increased market volatility.
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"We continue to view GW Pharmaceutical as the best long-term cannabis investment due to its deep pipeline of products, its successful FDA testing results, its Wall Street coverage and its valuation as its shares are trading well below the average Wall Street price target," said Berger. "We continue to view GWPH as a buy opportunity on weakness from today."
While there is less research available from analysts, some cannabis stocks listed on the OTC are also worth consideration, because they will benefit from the laws that passed in Florida, Nevada and California, Spatafora said.
Florida's adoption of medical marijuana use could be advantageous for Arcturus Growthstar Technologies (AGSTF) , which entered into a letter of intent to purchase a Florida farm that is zoned for cannabis. The state currently has six licensed producers and expansion will be needed to meet "massive demand," he said.
"They hedged on the LOI to wait and see if the law passed," Spatafora said. "The company was pretty wise in this potential acquisition because the farm already produces $2.6 million in revenue annually."
With Nevada voters approving adult use of cannabis, mCig Inc. (MCIG) , which used to specialize in lifestyle brands in the vaping and cannabinoid markets, could benefit. The company founded a construction division called Scalable Solutions geared toward the Nevada cannabis cultivation market.
