A lot of cannabis investors like to think every state that opens up to recreational sales will dramatically expand the market, as well as turning another spot on the map bright green.
I’ve never been a fan of that theory. As far as I’m concerned, people will travel to get the regulatory framework they want, effectively shopping for the cannabis laws that fit their interests.
Cannabis tourism in the early years pushed a lot of vacationers to Colorado and Washington before other states like Nevada responded in an effort to keep those leisure dollars from drifting elsewhere.
All in all, the market didn’t really expand as much as expected after every new state opened up. The existing pool of consumption simply broadened out geographically, without bringing a lot of fresh money to the overall table.
And if you still need convincing, just look at the cannabis stocks this week. New York finally agreed on a plan to legalize recreational sales and big names like Canopy Growth Corp. (NYSE:CGC) and Tilray Corp. (NASDAQ:TLRY) took a huge step backward.
Good news if you believe that the map is key to the industry’s future. Bad response.
The narrative only adds up when you accept that the map and the business model aren’t highly correlated after all. The map can expand and the stocks retreat.
Besides, we’ve seen the stocks soar without the map expanding at all. My proprietary cannabis index is still up 70% year to date after the last few weeks of selling.
Several companies like TLRY have doubled or even tripled in a matter of months. That’s not the map. That’s just the way money flows on Wall Street.
I’ve got triple-digit-percentage cannabis fun in my IPO Edge portfolio and more on the way. This is an entry point, not the end of the world.