Pot Stocks Surge on Heels of Midterm Election Results

Cannabis stocks reached new highs in pre-market trading Wednesday morning after voters in Michigan legalized the recreational use of marijuana. Michigan is the latest addition to a growing roster of states that have voted to legalize the recreational use of marijuana in recent years, bringing the total count to 10 states.

North Dakota also weighed in a measure that would legalize marijuana use for those over the age of 21, but voters overwhelmingly rejected the proposal by a margin of 59.5% to 40.5%. Although North Dakota won’t be legalizing recreational marijuana this midterm election season, cannabis companies in the United States and Canada rallied on new market opportunities in Michigan and what appears to be a shift in public perception about the drug. 

Cannabis Stocks Rally on Propositions in Michigan, Utah, and Missouri

The ETFMG Alternative Harvest (MJ) ETF, which invests primarily in cannabis companies, surged 2.2% ahead of the market open Wednesday morning after a 17% gain in the week leading up to midterm elections.

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In Canada, Aurora Cannabis Inc. (OTC: ACBFF) surged 3.8% in pre-market trading, Canopy Growth Corp. (NYSE: CGC) rose 3.8%, Cronos Group Inc. (CRON) jumped 5.5%, Tilray Inc. (TLRY) grew 8.2%, and New Age Beverages Corp. (NBEV) gained 4.5%. As of market open Wednesday morning, the Canadian Marijuana Index has gained 83.24% over the past year, compared to the 7.08% gain seen by the S&P 500 over the same period.

Although the United States cannabis market is significantly smaller than Canada’s, emerging companies reacted positively to Tuesday’s midterm results. Scotts Miracle-Gro (SMG) saw marginal gains, MedMen Enterprises (MMNFF) surged 4.67%, and MariMed (MRMD) rose 1.28%. The United States Marijuana Index has gained 72.27% over the past year, compared to the 7.08% gain seen by the S&P 500 over the same period.

Shifting Opinion About Marijuana Legalization

Michigan voters approved a law that legalized the possession, use, and cultivation of marijuana products by those who are at least 21 years of age. The proposal also legalized commercial sales of marijuana through state-licensed retailers subject to a 10% tax.

While Michigan is the tenth state to legalize the recreational use of marijuana, passing such a proposal would have been unthinkable half a century ago. When Gallup began polling Americans about the marijuana legalization in 1969, just 12% of respondents supported the issue.

Nationwide, 66% of Americans now support the legalization of marijuana according to a recent poll from Gallup. The latest figure marks the third consecutive year that support on the measure has increased and the highest approval rating to date.

Voters in Missouri and Utah also weighed in on propositions related to the legalization of marijuana, but their ballot measures pertained to the medicinal use of the drug. Both states passed amendments that legalize marijuana for people with qualifying illnesses, bringing the total count in the United States to 30 states.

Both Missouri and Utah were won handily by President Donald Trump in the 2016 general election, but Cowen analyst Vivien Azer says that support for marijuana is becoming more bipartisan.

"Encouragingly, support for cannabis achieved bipartisan support last year and Republican support was up 2 percentage points in 2018 to 53 percent," Azer told CNBC last week.

In the United States, Oklahoma voters overwhelmingly approved medical marijuana in late June, while Vermont legalized recreational use shortly after on July 1. New York may be the next state to approve medicinal or recreational marijuana usage, with New York State health officials reporting that "the positive effects of regulating an adult marijuana market in NYS outweigh the potential negative impacts."

Internationally, the North American continent stands to be a global leader in the medicinal and recreational marijuana industry.

Just yesterday, Senator Olga Sanchez, Mexican President-elect Andrew Manual Lopez Obrador’s choice for interior minister, announced plans to submit a recreational marijuana bill to Congress. If the bill passes, Mexico will become one of the world’s most populous countries to legalize marijuana alongside Canada, who opened its doors for business on October 17, 2018.

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