Cannabis stocks soared as rescheduling news made waves this month. The Department of Health and Human Services recommended moving the plant from Schedule I to III. Rescheduling opens new vistas for the cannabis industry, including much-needed tax advantages. Likewise, congressional researchers affirmed last week that the Drug Enforcement Agency will likely follow the rescheduling recommendation.
Of course, we’ve been on the cusp of legalization for years. Cannabis companies had their heyday in the late 2010s. That’s evident from the cannabis-based fund Alternative Harvest ETF (NYSEARCA:MJ) peaking at $40 per share in 2018. Today, it trades 90% below that high at a paltry $4 per share. Single cannabis stocks followed the trend, with many well below past highs and priced in penny stock territory.
Still, rescheduling is big news. Only 10% of Americans support cannabis remaining illegal, and the vast majority support recreational use beyond just medical applications. Eventually, winners will dominate the cannabis market – and these three stocks might come out on top.
Cannabis Stocks: Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is arguably the best semi-pure cannabis play. The company also announced that it was buying eight craft beer brands from Anheuser-Busch (NYSE:BUD). That makes Tilray the fifth-largest craft beer brewer in the United States. That market alone is booming as craft beer sales grew 8% in 2021, compared to 1% among all beer sales.
Although the craft beer brands will boost Tilray’s bottom line, we’re here to talk cannabis. But the move reinforces Tilray’s position in that market, too. Tilray bought a whole distribution network and market placement alongside the actual brands and breweries. The company CEO is leveraging that to pre-position Tilray as the primary THC-infused beer distributor. In an interview, Irwin Simon said, “Upon legalization (in the U.S.) one day, we will infuse these drinks with THC, with CBD, but we’ll have the distribution, and we’ll have the brands when and if legalization does happen.” One of the most difficult aspects of new market products is penetration and distribution. By acquiring these turnkey operations, Tilray can spread its product far and wide once legalization dominoes begin falling.
Constellation Brands (STZ)
Like Tilray, Constellation Brands (NYSE:STZ) is in the beer game. Unlike Tilray, that’s this company’s primary focus as the Fortune 500 company sells almost $10 billion in products globally, with most of its customer base in the States. But Constellation is also heavily invested in cannabis company Canopy Growth (NASDAQ:CGC) – creating a partnership that serves the same thesis as Tilray.
Although the company is taking a hands-off approach to its $4 billion investment, Constellation management is likely biding its time until legal winds shift direction. Constellation owns 35% of the company, a sizeable share of the cannabis company. CGC, in turn, is tightening up its financials to best pivot as rescheduling and legalization efforts gain traction.
Constellation is a bit off the beaten path, but legalization efforts are unpredictable and take time. Meanwhile, investors who want a less risky piece of the action can take advantage of Constellation’s existing market position and strong stock.
Valley National Bancorp (VLY)
One of the trickiest operational moves cannabis companies must navigate is their financial flow. Since cannabis remains illegal federally, traditional and legacy banking institutions shy away from letting them hold accounts in their company. But Valley National Bancorp (NASDAQ:VLY) is bucking the trend and embracing cannabis banking with open arms.
Valley National has a whole arm of its banking branch serving cannabis customers, aptly called Cannabis-related Business banking. The operational arm serves those in the industry, like dispensaries, cultivators, and even basic hemp businesses who otherwise must deal primarily in cash. Cash operations are risky and invite both theft and unwanted IRS scrutiny. By enabling cannabis companies’ financials to run above board, Valley National provides an invaluable service.
As the cannabis industry grows and matures, Valley National will likely continue as a primary player in the banking wing. Even as legacy banking institutions begin playing ball, major cannabis companies will likely maintain brand loyalty and stick with this cannabis banking service.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.