Business News

Marijuana stocks rise on optimism California, Florida votes will further legitimize market


Shares of stocks considered by Wall Street to be pot plays rose Tuesday on optimism referendums to legalize marijuana for recreational use in California and medical purposes in Florida will be approved.

Seven other states have similar measures on the ballot.

Shares of , a developer of cannabis-based drugs, and Scotts Miracle-Gro, with its hydroponics businesses, rose about 1 percent each Tuesday. Hydroponics is the process of growing plants in liquids without the use of soil and is a popular method for cultivating marijuana.

The Los Angeles Times last week cited a statewide USC Dornsife/Los Angeles Times poll, which showed 58 percent of likely voters support Proposition 64, the measure to legalize marijuana for recreational use in California. The Polling Institute at Saint Leo University's October poll revealed more than 70 percent of Floridians supported Amendment 2, which allows the medical use of marijuana.

"Various states with large populations are voting on marijuana legislation on Tuesday, Nov. 8, including California for recreational use and Florida for medical use. Polls point to favorable votes both in California and Florida," JPMorgan analyst Jeffrey Zekauskas wrote in a note to clients Monday.

Zekauskas cited how eight states will vote to legalize marijuana this month for either recreational or medical purposes. Twenty-five states have already legalized medical marijuana use and 20 states have decriminalized possession of small amounts of the drug, according to the analyst.

JPMorgan reiterated its overweight rating and raised its price target on Scotts Miracle-Gro on Monday due to potential of its hydroponics business. The bank turned heads in August when it upgraded the fertilizer maker due to its marijuana-related operations. But more Wall Street banks have since trumpeted marijuana as a legitimate investment opportunity.

"Cannabis prohibition has been in place for 80+ years, but the tides are clearly turning. Potential product applications range from recreational, to health and wellness, to therapeutic, to pharmaceutical," Cowen's research team wrote in a September note to clients.

Cowen's study shows more than 32 million Americans admit to marijuana use, with 8 million using it on a daily basis. The firm estimates if Californians approve recreational cannabis use, it will triple the legal U.S. marijuana market.

If referendums do pass, it will be bullish for Scotts Miracle-Gro, according to SunTrust Robinson Humphrey's William Chappell. He wrote in a note to clients Thursday that "once recreational marijuana is legalized in a state, SMG has seen on average a 2x jump in its hydroponics business in that state."