Are Pot Stocks Still Vulnerable to COVID-19 Issues?
While COVID-19 appears to be (mercifully) on the ropes—at least in terms of serious cases—it doesn’t mean that, magically, everything will go back to normal. There will be lingering consequences, and they may very well impact marijuana stocks.
One such lingering consequence is the disruption of supply chains.
For instance, a shortage of semiconductors has begun to cause havoc in a number of industries, most notably auto manufacturing. (Source: “Saagar Enjeti: A Story of How Elites Sold Us Out and Trump Did Nothing About It,” The Hill, YouTube video, February 25, 2021.)
The simple fact is, with COVID-19 precautions still in place (and likely to be in place for years to come), traveling and shipping goods between countries will become exponentially more difficult. What’s more, crowded factories and resource-extraction sites are potential outbreak hotbeds.
All this has culminated in a very beleaguered global supply chain.
Consider that the cost of sending a shipping container from Asia to Europe is roughly 10 times higher than it was in May 2020. The cost of shipping from Shanghai to Los Angeles has increased sixfold. (Source: “The World Economy’s Supply Chain Problem Keeps Getting Worse,” Bloomberg, August 25, 2021.)
According to HSBC Holdings Plc (NYSE:HSBC), the global supply chain has become so fragile that one small accident “could easily have its effects compounded.” (Source: Ibid.)
Now, you may be wondering: What does any of this have to do with pot stocks?
Well, like any producer in our globalized economy, pot companies need raw materials, technologies, and access to resources.
What’s more, as I’ve discussed in previous articles, cannabis stocks have been particularly vulnerable to pandemic-related economic slowdowns. If a new slowdown crops up due to supply chain issues, that could hurt share prices.
But there’s a lot of good news for marijuana stock enthusiasts.
As you can see in the following chart, pot stocks have made some major progress over the past 12 months, all of which have been during the COVID-19 pandemic.
Chart courtesy of StockCharts.com
Considering how battered many cannabis stocks were when the pandemic arrived, and how resilient they’ve proven to be now, we’re seeing a new gush of enthusiasm for marijuana stocks.
After all, marijuana was one of the first industries to see major share-price plunges at the outset of the pandemic. In other words, they’ve already taken COVID-19’s best shot and are still standing.
That bodes extremely well for the future. Not only does the resiliency show that pot stocks can bounce back from pandemic-related downturns, the accomplishment actually makes future share-price falls less likely.
Why? The reason cannabis stock prices fell in the first place was panic, and that’s less likely to happen this time around.
You see, investors, faced with a once-in-a-century pandemic, were eager to fill their portfolios with safe-haven investments and other assets that would likely be more dependable in times of economic uncertainty.
Now that investors have proof that marijuana stocks can withstand a tumultuous market, it means they’ll be less likely to abandon ship if we find ourselves in another pandemic.
The second and more pertinent bit of good news about pot stocks is that, although supply chain issues will impact cannabis stocks, their impact will be relatively muted compared to the impact on other industries.
That’s because there really isn’t much of an international legal marijuana trade (yet). Most of the product is grown, processed, and sold within domestic markets; marijuana really isn’t shipped internationally at this point.
That’s due to major legal restrictions, but even in the U.S., where hundreds of millions of people now have access to legal pot, marijuana companies can’t legally ship their goods across state lines, let alone to other countries.
That’s because state borders are administered by the federal government, which means the federal prohibition against marijuana applies to interstate trade.
While technically, all of the U.S. is under federal jurisdiction, the feds’ policy on marijuana has been laissez-faire. States can regulate marijuana as they wish within their borders, but as far as the federal government is concerned, the drug is still illegal.
As such, marijuana markets around the globe have had to develop robust, self-contained ecosystems. This, in turn, has helped those markets gain some degree of protection (though not, by any means, full immunity) from supply chain issues.
In other words, investors don’t need to be overly concerned by the pandemic’s continued ability to plague our economic system. Investors can trust marijuana stocks to weather the storm and likely emerge even stronger on the other side.
As the COVID-19 pandemic winds down, we no longer inhabit the same world as before.
The virus has forced upon us many changes, and a good chunk of those changes will be long-lasting. But pot stocks have proven that they can take the worst the pandemic has to offer and remain strong.
What’s more, one of the most concerning post-pandemic economic hangovers—disruptions to supply chains—is less likely to dramatically impact cannabis stocks.
That all serves to make me bullish on marijuana stocks.