Before the hype surrounding meme stocks and AI, cannabis producers were one of the hottest topics among investors hoping to multiply their money quickly. The big bet was on the legalization of cannabis for non-medical use, its production, and sale in Canada, a change that effectively came into effect in October 2018.
However, once the event took place, the classic “buy the rumor, sell the news” pattern played out in stocks like Aurora Cannabis and Canopy Growth Corporation. Since then, their share prices haven’t just failed to recover — they’ve collapsed by more than 95%. Not even BTCUSD has seen a drop that steep.
In hindsight, the boom was nothing more than a bubble that eventually burst. There were some attempts at recovery, driven by hopes that the US would decriminalize cannabis at the federal level, which would open up a vast market for these producers, but in the end, these hopes have not yet been realized.
In 2022, the industry was getting closer to that goal: the US House of Representatives passed the Secure and Fair Enforcement Banking Act (SAFE). This law would subsequently allow cannabis companies to access traditional banking services, simplifying their lives.
It should be noted that as long as cannabis remains illegal at the federal level, companies cannot open regular bank accounts. Only a few regional banks are willing to work with them, and it is almost impossible for them to obtain loans. As a result, companies have had to resort to issuing more shares or bonds to raise capital.
Unfortunately for cannabis producers, the bill stalled in the Senate. Three years later, nothing has changed.
Could Trump save the sector?
Recently, Donald Trump stated that his administration is “looking into” reclassifying cannabis as a less dangerous drug. To put this in context: while cannabis is legal (even for recreational use) in 24 U.S. states, it remains illegal at the federal level. No surprise, cannabis-related stocks soared following Trump’s remarks.
The issue is that it’s still far too early to talk about real change in the sector. We’ve seen this many times before — stocks jump on optimistic headlines, but the promised reform never materializes. Former President Clinton also attempted to reclassify cannabis as a Schedule III drug but failed to do so before leaving office.
For that reason, going all-in on cannabis producers still seems like a risky move. One should also consider analyzing each company individually or, better yet, consider an ETF that covers the entire sector. Investing in overall market sentiment is essential, as heightened risk aversion could easily trigger a sell-off.
This article was written by IL Contributors at investinglive.com.from Investinglive RSS Breaking Education Feed https://ift.tt/VzC108l
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