Although rapidly changing marijuana laws across the United States have buoyed investor optimism about the industry’s growth prospects, uncertainty surrounding federal level legalization has been a cause for concern lately. As such, the industry could witness extreme volatility in the coming months. Considering this, we believe fundamentally weak cannabis stocks HEXO Corp (NYSE:HEXO), 22nd Century (NYSE:XXII), and Akerna (NASDAQ:KERN) are best avoided now.The cannabis revolution is gaining traction in the United States as the legalization of recreational and medical cannabis picks up steam at a dramatic pace. So far, 18 states and Washington, DC, have legalized the use and cultivation of recreational cannabis. So, approximately 44% of the U.S. population now lives in a state where recreational use of marijuana is legal, or soon will be.
However, pot legalization at the federal level still faces a roadblock. Despite the fact that the MORE Act, which was reintroduced last month by House Judiciary Committee Chairman Jerry Nadler, to decriminalize cannabis at the federal level is likely to be passed by the Democratically controlled House of Representatives, the Senate’s decision position remains uncertain. And since the chamber's disagreement could stall the federal legalization process further, the cannabis industry is expected to witness significant stock market volatility in the coming months.
Given the uncertainty surrounding federal legalization of cannabis, we think it's best to avoid cannabis companies that don’t possess good financial health. To that end, we believe HEXO Corp. (HEXO), 22nd Century Group Inc. (XXII), and Akerna Corp. (KERN) are best avoided now.