Day 420: Legal marijuana profits up in smoke

April 20 is "Day 420" - an unofficial holiday for all those seeking legalization of marijuana for medical and recreational purposes. However, those who have invested in marijuana stocks don't have much to celebrate. All because of huge expectations towards the industry, which have not been met so far.

Legal marijuana and society

In Poland, it has been possible to use medical marijuana for several years. However, the topic of legalizing its recreational use remains outside the mainstream of public discussion. However, in the USA and Western Europe it is different. In the United States, public opinion polls, as well as the bias of some politicians, are in favor of legalizing marijuana at the federal level. Before this happens, legalization is carried out by individual states - in 38, its medical variety is legal, and in 21 - recreational. According to statistics, currently 16 percent. Americans admit to using marijuana. By comparison, 11 percent smoke cigarettes, and 45 percent he drinks alcohol.

In Europe, the turning point in thinking about marijuana and the business related to it will be its legalization in Germany. The implementation of this demand is part of the coalition agreement between the SPD, the Greens and the FDP, which is the basis for the activities of Olaf Scholz's government. Legalization was a government priority, but work on it slowed down due to the pandemic and war. Last week, the German authorities presented a draft of solutions, which, however, are limited in nature compared to the original plans. The German government fears that more far-reaching solutions could be opposed by the European Union or be incompatible with international law. The current proposal provides for the possibility of possessing up to 25g of marijuana for personal use, as well as the possibility of growing marijuana for personal use; independently or in the form of dedicated clubs. These regulations should enter into force in Germany after their adoption by the Bundestag by the end of this year.

However, the legalization process is progressing more slowly than the industry associated with the production and distribution of legal marijuana would expect. These companies have less reason to celebrate lately - the largest in the sector ETF, Pure US Cannabis ETF (MSOS), worth $322 million, has lost 87% in value over the past two years, and 24% in value. only this year. This result is worse than the benchmark American S&P 500 index by 87%. in the last two years and 33 percent this year. However, this sector is still promising, because there are many indications that the process of legalizing marijuana in the world can no longer be stopped.

CHECK: Marijuana – how to invest in the hemp market? [Guide]

Publicly traded cannabis companies have experienced severe declines for several reasons. The industry has been disappointed by the lack of movement to federally decriminalize marijuana in the US, arguably the largest market in the world. That was what was expected of the Democratic president and administration. The more so that in 2024 power may pass into the hands of the Republicans.

However, we must not forget that in the long term, pro-legalization attitudes are becoming more and more common in the US and around the world. An example of this is the current changes in Germany, which may influence the emergence of similar solutions in other parts of Europe.

For now, however, cannabis companies remain exposed to the costs of a complicated patchwork of US state and federal regulations, while growth in the sector is limited. It is not growing as fast as predicted a few years ago. In this context, it is worth pointing out that the largest listed company on the hemp market (Curaleaf) has a capitalization of PLN 7,3 billion, while in the alcohol industry, the Chinese Kweichow Moutai has a market capitalization of PLN 1,36 trillion. In the tobacco industry, American Philip Morris has a capitalization of PLN 0,73 trillion.

Where did Day 420 come from?

There are many myths on social media and around the world about how 4/20 came about, but most of them are difficult to verify. Most likely, 420 Day originated in California in the 70s, when a group of teenagers from San Rafael High School in Marian County would gather to smoke marijuana at 4:20 a.m. each day. The number 420 became their code for marijuana, and then, the term 420 became synonymous with the drug and was promoted by bands like The Grateful Dead.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.