Although cannabis stocks have had a solid rally on optimism over potentially broad legalization of marijuana in the U.S. since Joe Biden was elected President, many analysts don’t expect that to see that legalization soon. As such, we think the Reddit forums’ WallStreetBets’ short squeeze targets in this space, Tilray (NASDAQ:) and Sundial Growers (NASDAQ:), should be avoided now.Investors have been betting on the cannabis industry on optimism over the potential for broad legalization of marijuana in the United States since Joe Biden’s Presidential win last year. This is evidenced by the AdvisorShares Pure Cannabis ETF’s (YOLO) 68.6% returns over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 20% gains.
However, many analysts don’t expect broad cannabis legalization in the U.S. to happen anytime soon. According to White House Press Secretary Jen Psaki, “The President supports leaving decisions regarding legalization for recreational use up to the states, rescheduling cannabis as a Schedule II drug so researchers can study its positive and negative impacts and, at the federal level, he supports decriminalizing marijuana use and automatically expunging any prior criminal records.”
Given this backdrop, fundamentally weak cannabis stocks that are currently trading at high valuations based solely on optimism over the industry’s growth prospects based on a federal legalization in the near term could retreat. Two such stocks in this space, Tilray, Inc. (TLRY) and Sundial Growers Inc . (SNDL), are also short squeeze targets of Reddit forums’ WallStreetBets. So, investors should avoid these stocks now.
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