COVID Delta: A Profit Catalyst for Cannabis
I derive a lot of wisdom, even of the investment variety, from reading Buddhist philosophy. Let’s consider the Buddhist parable of the farmer and his horse.
First the farmer loses his most valuable possession, his horse. Shall we call that bad luck? But then the horse returns bringing a dozen new horses with it. Is that good luck? Then his son breaks his leg while taming one of the new horses; then the son is spared from getting drafted into the army because of the broken leg…and so on. You get the idea.
Under the Taoist paradigm of duality, bad leads to good, then good leads to bad…in an endless cycle.
Spooked by the emergence of the COVID Delta variant? It’s an open question as to whether public health officials can quickly get a handle on this deadlier and more contagious mutation of the coronavirus.
But if you’re looking for an industry that’s immune from Delta, look to marijuana. In fact, this latest setback with the pandemic actually helps the marijuana industry.
Sometimes Wall Street is a paradox, where it’s hard to distinguish bad news from good news. Don’t get me wrong: I am not making light of COVID Delta’s threat to human life and the global economy. But from a strictly financial standpoint, Delta is very good news for the pot industry and its investors.
Vaccination rates are lagging in certain regions of the world, especially in U.S. “red states” where anti-vaxx sentiments run high. Nearly 20% of the nation’s new COVID infections are now happening in Florida alone (a major marijuana producing and consuming state, by the way).
The Delta scourge makes the vaccination gap a bigger problem. In a statement Sunday that unnerved the nation and paved the way for Monday’s stock market plunge, Scott Gottlieb, the former commissioner of the U.S. Food and Drug Administration, predicted that “most” unvaccinated Americans will get infected with the COVID Delta variant.
Other public health officials made similar statements over the weekend. Surgeon General Vivek Murthy said Sunday that he expects more state and local governments around the nation to reimplement COVID-19 prevention measures, including mask mandates.
If lockdowns and mask mandates are reimplemented in parts of the country, state and local leaders are likely to once again deem marijuana an “essential” industry that’s allowed to stay open.
During the first wave of the coronavirus pandemic, marijuana companies adapted by expanding curbside and online services. These enhanced capabilities will hold canna-businesses in good stead if Delta sends consumers back into their homes and clobbers the economy anew.
Delta-induced stress and quarantines should also prompt consumers to turn to marijuana with even greater eagerness, just as they’ve been leaning on liquor and cigarettes during this trying time.
It’s an old investment adage: During crises, so-called sin stocks tend to outperform. Cannabis is no exception. During the initial stages of COVID’s outbreak in early 2020, consumers started to hoard marijuana with a vengeance. Another spike in pot hoarding could be around the corner.
Accordingly, marijuana stocks have been surging (albeit in characteristically volatile fashion). The marijuana industry benchmark exchange-traded fund Amplify Seymour Cannabis ETF (CNBS) has crushed the S&P 500 year to date, 33.18% versus 15.10% respectively (as of market close July 21). Take a look at the following chart:
Marijuana stocks are on track to continue their ascendancy in the second half of 2021. Legalization efforts at the federal and state levels are additional tailwinds.
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When looking for suitable marijuana investments, our team’s strategy is to find companies that apply a unique value-add, whether in the recreational or medicinal sector.
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