Let’s not mince words, federal U.S. marijuana legalization is an important topic. In fact, it’s easy to argue that it’s the most important future event that pot stock investors ought to be watching out for.
And I’d agree. But that doesn’t mean it’s the only thing marijuana stock investors should be on the lookout for in 2021.
Many analysts have been overlooking one vital factor: global marijuana market growth. Now, the thing about global pot market growth is that it’s very much tied to legalization. After all, it’s impossible for the (legal) industry to develop if governments don’t allow legal pot sales in the first place.
That situation has naturally brought us to a place where almost all of the industry focus is on the U.S., and that makes sense. American pot legalization is closer to becoming a reality than it has ever been. We’re living through the first presidency in our lifetime that could realistically institute major changes to weed laws in the U.S.
As I’ve written before, those prospects aren’t looking as bright as they were at the outset of President Joe Biden’s administration, though. And that, in turn, has brought pot stocks down in recent weeks.
But there’s an important thing to remember for all buy-and-hold, long-term marijuana stock investors (what I believe to be the best position, by the way): the marijuana market doesn’t begin and end with the U.S.
U.S. and German Markets
As large and powerful as the U.S. economy is, it’s still considerably smaller than the EU’s total market. To be fair, we’re comparing apples and oranges, as an EU declaration of marijuana legalization is highly unlikely. Instead, legalization in Europe will likely proceed on a country-by-country basis.
So it makes sense that, when it comes to pot stocks, people see more potential in the U.S. than they do in the EU.
But in a country like Germany, which has an election coming up in September, a new government could come in and enact recreational pot legalization, something that’s growing in popularity.
In fiscal year 2020, Germany imported almost 10,000 kilograms of medical cannabis flower. (Source: “Germany Imports Record Volume of Medical Cannabis in 2020,” Prohibition Partners, February 16, 2020.)
What’s more, Germany is a robust and powerful economy, with a gross domestic product (GDP) of nearly $4.0 trillion.
All this combines to make German marijuana legalization one of the more potential-filled opportunities for the legal pot industry to grow.
Once we add in other large nations that could legalize marijuana in the coming years before the U.S. does (France, Italy, the U.K., etc.), we have the potential to see a rolling run of gains for marijuana stocks, with each consecutive market opening up.
Note that Germany already has some connection to Canadian pot stocks. That makes these stocks uniquely suited to profit from the eventual German pot legalization.
Moreover, German marijuana legalization would likely come with fewer restrictions than U.S. pot legalization, based on Germany’s less-puritan attitudes when it comes to drugs.
The U.S. has been waging a War on Drugs for decades now, with many prohibition crusaders believing pot to be detrimental to society. That staunch opposition to marijuana legalization simply doesn’t exist to the same extent elsewhere as it does in the U.S.
Furthermore, German legalization could set off a domino effect in which nation after nation in the EU joins what is often considered the lead EU nation in opening up the pot market. That alone would help send marijuana stocks soaring—and it’s a very plausible scenario.
Take all this into account alongside the fact that the U.S. has already opened a number of its larger markets, like California, to legal pot, and those markets have been maturing.
While the California pot industry has little access to outside capital, the banking system, and the stock market due to the prohibitive pot laws at the federal level, it has still had the chance to develop its own internal legal marijuana economy.
We’ll no doubt see more investments and attempts to eke out market share in California when the U.S. eventually legalizes pot federally, but this will take time. Not to mention that California may have an incentive to keep the industry local, rather than benefit Canadian pot stocks (which are the only ones really available on the stock market at the moment).
I do expect that Canadian pot companies will find their way into the U.S. marijuana market; I’m just saying it will be difficult and take a while, dampening the potential share-price surge.
By contrast, the German pot market will likely be more cooperative and open to Canadian marijuana companies (especially considering the established Canadian marijuana stock presence there).
That alone could mean German pot legalization would have a more immediate benefit to pot companies (at least from a financial perspective, rather than hype) than U.S. marijuana legalization would.
It’s worth noting that we’ll likely see an explosion of U.S. marijuana initial public offerings (IPOs) once federal legalization arrives, but for those looking to exercise the buy-and-hold strategy that has netted upward of 800% for investors in the past, Germany is where they should be focused.
Federal U.S. marijuana legalization is going to be game-changing for the pot industry. But as that scenario drifts a little further into the future, it’s worth considering all the alternative ways to make serious gains from pot stocks.
One of the best ways to make those gains is by investing in Canadian marijuana stocks in anticipation of another major global marijuana market opening up legally, like Germany.