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Stock Markets Are Record-Bound; Marijuana Stocks Soar

Tuesday morning brought fresh new record highs to parts of the stock market, and it even sent the Dow Jones Industrial Average (DJINDICES: ^DJI) past a key milestone. After having encountered amazing volatility throughout 2020, investors now seem ready to put the year behind them and focus on the promise that 2021 will bring.

As of 11:45 a.m. EST, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 470 points to 30,061, which would be enough for a new record if it finishes the day at that level. The S&P 500 (SNPINDEX: ^GSPC) climbed 55 points to 3,632, which would also be a new record close. The Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 117 points to 11,998, falling short of reaching unprecedented levels by about 1%.

There were several pockets of success in the stock market Tuesday. Entertainment and energy stocks were prominent among gainers, as hopes for a viable coronavirus vaccine and a jump in oil prices of more than $2 per barrel lifted crude back above $45. Yet the most interesting move came from cannabis stocks like Aurora Cannabis (NYSE: ACB) and Tilray (NASDAQ: TLRY), which jumped apparently in response to something that many people had already taken for granted.

Image source: Getty Images.

Pot stocks go higher

Aurora Cannabis saw its stock rise more than 20% on Tuesday morning. Tilray rose 13%, while industry peers Canopy Growth (NASDAQ: CGC) and Cronos Group (NASDAQ: CRON) settled for 8% gains.

The rising tide stemmed from the latest news out of Washington. Investors believe that a Biden administration will be friendlier to the idea of federal cannabis legalization than the Trump administration has been. Even though the results of the presidential election had become increasingly clear, cannabis investors nevertheless cheered news that the White House would move forward in working with Biden administration senior officials to coordinate a transition.

Pot stocks already had a lot to celebrate at the state level. All five states that were considering measures to expand the availability of marijuana saw those measures pass. The industry has been taking advantage of state-level opportunities as they arise, and the more states pass legislation, the sillier it looks for federal-level prohibitions to stand.

Will cannabis companies burn investors again?

Even with today's big gains, it's easy to understand why some investors watching the marijuana market might hesitate to jump in head-first. Prospects looked equally good when the Canadian market opened up for adult recreational marijuana use, but the reality hasn't been as good as anticipated. Indeed, the challenges associated with recreational cannabis in Canada have been a large part of what caused huge losses for Aurora, Tilray, and other marijuana stocks.

Moreover, big-name cannabis companies still haven't necessarily turned the corner. In particular, Aurora is still working through a host of issues, reorganizing its business and continuing to raise capital through secondary share offerings at a furious pace. That's left some shareholders worried that even if the U.S. market does open up to cannabis at the federal level, Aurora might not be in a position to take full advantage.

Competition is also rearing up. Challenging the top early names in the industry have been companies like Village Farms International (NASDAQ: VFF) and GrowGeneration (NASDAQ: GRWG), both of which have found their own niche plays in cannabis. With so many new companies in the business, investors have to be careful in assessing the true competitive advantages that Canopy Growth, Cronos, Tilray, and Aurora have.

A happy holiday

As the holiday season approaches, stock markets are getting in a festive mood. No matter what happens with cannabis stocks and other sectors of the market today, the long run has a lot of promise for investors across the market.

Here's The Marijuana Stock You've Been Waiting For
A little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

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Cannabis legalization is sweeping over North America – 11 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.

And one under-the-radar Canadian company is poised to explode from this coming marijuana revolution.

Because a game-changing deal just went down between the Ontario government and this powerhouse company...and you need to hear this story today if you have even considered investing in pot stocks.

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Learn more

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GrowGeneration and Village Farms International Inc. The Motley Fool has a disclosure policy.


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