The coming legalization of marijuana in Germany should give a lift to pot stocks like Canopy Growth (NYSE:CGC), Tilray (NASDAQ:TLRY), Cronos (NASDAQ:CRON), SNDL (NASDAQ:SNDL) and Aurora Cannabis (NASDAQ:ACB).
So far, however, investors are facing a bad trip.
German legislators decided their new law will start coming into effect on April 1. The law makes possession and home cultivation legal and lets social clubs distribute cannabis to their members.
Karl Lauterbach, the Social Democratic legislator who pushed the measure, said it was the beginning of the end of the black market.
A Troubled High
How cannabis companies, most of them based in Canada, will take advantage remains unclear. The German law allows people to grow marijuana for themselves, which could limit the gains pot stocks were seeking.
That may be why, despite early optimism, a hangover was already settling in when the market opened today. Canopy fell nearly 10% before rebounding, Aurora dropped 7%, and Tilray dropped 2% after an initial jump. The other pot stocks were down less than 2%.
The stocks rose on March 22 after Vice President Kamala Harris criticized current federal law at a White House event. The Drug Enforcement Administration (DEA) is moving to take marijuana off the list of “Class 1” drugs, which includes heroin. The current schedule treats marijuana more seriously than fentanyl. The Biden administration issued a blanket pardon for marijuana possession convictions in 2022.
However, legal marijuana is still being beaten by the illegal product in U.S. markets. Illegal growers can sell for less and aren’t subject to the regulation of legal products. Police can’t tell the difference.
Some 27 states have decriminalized or legalized marijuana in the last decade. Others, like South Dakota, are still working on it.
But reform still has powerful opponents, including House Speaker Mike Johnson.
Cannabis Stocks: What Happens Next?
It’s hard to see cannabis companies making a lot of money if legalization isn’t followed by effective regulation and enforcement.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
