In part 1 of the election playbook, you learned how cannabis laws will change depending on how voters cast their ballots on November 3rd.
Part 2 is where things get fun.
We’re talking cannabis stocks.
What we’re buying to profit from every election outcome.
Grizzle built four portfolios using disciplined quantitative screens to ensure risk is balanced against potential stock price upside.
Scenario 1: A Democratic Sweep
This is the most bullish scenario for the cannabis industry by far.
If democrats run both the Senate and the House investors should expect decriminalization in 2021 as well as open access to traditional banking (loans, checking accounts) for all the U.S. cannabis companies.
We are overweight small U.S. producers with cash problems in this scenario as access to new and cheaper loans will make a huge difference to their fortunes.
Their footprints are solid, but they lack the cash to expand.
Risk creates opportunity and we believe the smaller U.S. players offer the most upside if democrats run the country.
We’d also own a big slug of the best in class U.S. multi-state operators as they already dominate their markets and will be able to grow even faster with decriminalization and access to banking services.
Equipment providers make money in all scenarios and should be a core part of the portfolio regardless.
We also would put 10% of your money into the big, cashed-up Canadian growers.
Decriminalization will allow them to enter the U.S. market with mergers or acquisitions.
A strong catalyst for this group of beaten-down stocks.
You have to pick wisely though.
Only those with enough cash will be able to change their fortunes in the U.S.
Our Canadian basket is concentrated with only three names. For more details subscribe to be sent the holdings list for free.
Our Preferred Portfolio for Scenario 1
Source: Grizzle
A Democratic Senate and House would achieve the same outcome as scenario 1, even with Trump as President, which is why we didn’t break it out as its own election outcome.
Scenario 2: Biden is President but Senate Remains Republican
A Senate still hostile to cannabis makes scenario 2 a worse outcome than scenario 1, but with Biden as president investors should still expect meaningful changes to cannabis regulations.
We think decriminalization and access to banking will come, but with a more drawn out timeline than in scenario 1.
The most significant change to the scenario 2 portfolio is a big cut to the Canadian cannabis weighting.
The timeline on decriminalization will be uncertain making the move into the U.S. uncertain as well.
Canadia pot stocks are much less compelling in this case.
We would continue to own small caps again for the superior upside, but less of them.
We would own more best in class multi-state operators as they are set up to win regardless of who controls the Senate.
Lastly, we moved the 5% Canadian weight into the equipment providers as they continue to offer lower risk upside.
Our Preferred Portfolio for Scenario 2
Source: Grizzle
Scenario 3: The Status Quo
The status quo is more of the same.
Trump remains our president and the Republicans hold onto the Senate.
In scenario 3, we are doubling down on the portfolio that’s worked very well for us in 2020.
You own the best in class U.S. multi-state operators, in size.
They are growing fast, generating good margins and will continue to expand rapidly even if current laws remain challenging.
You also own the equipment providers who will benefit as long as more growers are entering the market, which they will.
Owning the company’s providing the picks and the shovels, not doing the actual mining has worked for hundreds of years.
Our Preferred Portfolio for Scenario 3
Source: Grizzle
Portfolios Are Just the Beginning
Now that you know the portfolio weights, the next critical step is to know what and how we’ve chosen the holdings in each portfolio.
Unique, fundamentally driven holdings you won’t find anywhere else and all for free.
Join a thriving investor community here and the detailed holdings list along with methodology will be automatically emailed to you.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.
