“It’s the good life, full of fun, seems to be the ideal…”

Before I get to today’s theme of marijuana stocks as “sin plays,” I want to impart a quick lesson about how human beings often behave during a societal crisis.

At dusk in November 1965, the biggest power failure in U.S. history occurred as all of New York state, parts of seven neighboring states, and parts of eastern Canada were plunged into darkness. The Great Northeastern Blackout, as it would be called, was caused by the tripping of a transmission line near Ontario, Canada.

In New York City, millions of commuters and residents were trapped in the city’s subways, office buildings, elevators, and trains. The blackout lasted until morning.

Nine months later, several large hospitals in New York City reported a sharp rise in births.

I thought of this historical event, as I reviewed the latest marijuana sales figures during the COVID emergency. When the going gets tough, ordinary people predictably turn to primal pleasures, whether those pleasures can be found in a stuck elevator or a marijuana dispensary.

The coronavirus has been deleterious to public health, but it’s been a boon for the marijuana industry and its publicly traded companies.

The Devil you know…

Just as consumers turn to booze, cigarettes, gambling, and other “vices” during crises, so too have they turned to cannabis. Consumers are alleviating their physical and psychological stress (or their sheer boredom) by getting high. COVID threatens many other sectors, but it actually benefits marijuana sales. That’s especially true of the newly emergent Delta variant.

According to New Frontier Data, quarterly sales across legal medical and adult-use states reached an all-time record in Q1 2021 of $5.8 billion, with sales for Q2 2021 projected to reach $6.1 billion (see chart).

Total combined sales of cannabis across legal state markets crossed the $20 billion threshold for calendar year 2020. With new legal markets expected to get launched over the next two years, total legal sales are projected to grow at a compound annual growth rate of 16%, to reach $43 billion by 2025.

Read This Story: The Cannabis “Halftime Report”

Recent events in the Land of Lincoln are instructive. According to Illinois regulators, dispensaries in the state sold a record $127.8 million in recreational marijuana in July, with a huge boost coming from out-of-state fans who converged on Chicago for the Lollapalazoo music festival. The month’s sales in Illinois were 10% higher than May’s record of $116.4 million.

Accordingly, marijuana equities overall have been soaring. The benchmark Amplify Seymour Cannabis ETF (CNBS) has greatly outperformed the S&P 500 year to date, 31.46% versus 18.12% respectively (as of market close August 9).

Adding momentum to the ascent of marijuana equities is the accelerating pace of mergers and acquisitions in the industry, as large-cap consumer giants seek to incorporate the innovation and popular brands of smaller players.

As the economic expansion accelerates and second quarter 2021 operating results for all S&P 500 companies continue to beat expectations, among the biggest winners are companies in the gaming, leisure, and hospitality industries, all of which were the hardest hit during the worst of the pandemic last year.

Gambling resorts headquartered in Las Vegas are reporting huge increases in revenue and profits, as consumers defy COVID to seek the good life. This summer, the Vegas gaming giants are making a comeback worthy of Elvis. In a similar vein, “marijuana tourism” operators are reporting record-breaking activity.

A quick word about the notion of “sin.” Some investors shun marijuana stocks, just as others refuse to put money into tobacco companies, defense contractors, gun makers, gambling casinos, and liquor distilleries. They have a right to their moral qualms. Let your conscience be your guide. Speaking for myself as an investor, I prefer to take the world as it is, not as I wish it to be. I leave judgment out of it.

Case in point: Recent news about worsening climate change is disturbing. If you hold fossil fuel stocks, do you now plan to dump them? Let the portfolio without sin cast the first stone.

Meanwhile, if you’re looking for a source of profits that’s not only immune to the pandemic but thrives because of it, consider marijuana stocks. But you shouldn’t indiscriminately jump into the sector.

We’ve developed sophisticated stock screens that separate the cannabis winners from the losers, the wheat from the chaff. For our favorite cannabis plays, click here.

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