Published on 26 February 2020, 10:30 America/New_York

After solid bullish gains during the first week of January, bearish sentiment quickly returned into the market during the latter half of the month. In February, we have seen prices begin to be less volatile, bringing investor interest back into the market. This could be due to investors once again seeing the value in beaten-down marijuana stocks, but there is undeniably more than one reason for the recent bullish sentiment. In 2020, we have a lot to look forward to for pot stocks. There are a few important reasons that could help to put marijuana stocks back on the map.

The first reason is that once overbought pot stocks are now trading far below their market value. Prior to September of last year, the top three pot stocks in the industry were trading at highly overvalued levels. The second reason is that 2020 is an election year in the U.S. This means that we could see some laws overturned, or new ones put in place. Laws are the backbone of the legal cannabis industry and help to push the market forward. The last reason is the widespread efforts to crush the black market. Illegally sold cannabis has hindered market growth and sales respectively, around North America. With efforts to help lower the market share of the black market, we could see sales begin to rise once again.

Pot Stocks And Their Intrinsic Value

If we view the large marijuana growers as producing commodities, we see that there is a lot of intrinsic value within them. This is because these companies are producing a product, which has a predetermined value. Although there are struggles that are independent to each company, if a marijuana business is producing cannabis, it is pulling in some amount of revenue. Back in September of last year, the majority of pure-play pot stocks were trading high above their intrinsic values.

When investors realized that prices were inflated, they soon began to selloff shares. This resulted in a large crash in the market that is still felt today. But, there is one good thing about what happened in the last 6 months. Now, investors are beginning to invest in the potential value of pot stocks, rather than on short term speculation. Because of this, pot stock valuations are more true to their actual value than we have seen in quite some time.

Marijuana Stocks Face An Election Year in the U.S.

2020 is the year that the U.S. elects a new president. Our current president, Donald Trump, has not done much to put the cannabis industry on track for national legalization. But, with cannabis being a big issue that candidates are debating, 2020 could be the year that we see a pro-marijuana president elected in the country.

The Democratic Party is almost homogeneously in favor of legalizing marijuana. This means that any Democratic candidate would be good news for the industry. On the flip side, if Trump is reelected, he will have to face the issue of whether to legalize cannabis or not. Much of this remains up in the air right now.

Efforts to Curb the Black Market

The black market is a big issue across all legal cannabis markets. In the U.S. and Canada specifically, illegal marijuana has altered sales expectations and market forecasts. One of the greatest efforts to curb the black market is taking place in California; the largest marijuana market in the world. A recent study showed that as much as $8.7 billion of the almost $12 billion spent on cannabis in the state, is spent on illegally grown marijuana. The state is responding to this by working to reduce taxes and fees on legal cannabis businesses. This should help to make legal cannabis prices more competitive with the black market.

2020 could be a great year for the cannabis industry. As is stated above, there are a few exciting factors that could revolutionize the cannabis industry. Currently, we have a few hurdles to overcome before the market can reach its full potential. But, it looks like there are exciting things in the works that lie ahead.