Cannabis has quickly made its way from underground culture into the mainstream. As of 2020, the global cannabis industry is valued at $9.1 billion and projected to increase at a compound annual growth rate of 26.7% from 2021 to 2028.

Benzinga sat down with Tony Venosa, CMT, Senior Options Strategist at Schaeffer's Investment Research, for insight into the latest trends impacting the cannabis industry and pot stocks.

The Road to Legalization

Public support for marijuana legalization has gained plenty of traction in recent years. An overwhelming majority of 91% of American adults believe that marijuana should be legal for medical and recreational use (60%) or that it should, at the very least, be legal for medical use (31%).

This support has been reflected on the legislative front as well. According to Venosa, we’re witnessing 2 significant developments. The 1st is the growing acceptance of marijuana legalization for medical use among conservative states.

“Just a couple of weeks ago, the Alabama governor signed a medical marijuana legalization bill,” Venosa said. “In Utah, thanks to a blessing from the Church of Jesus Christ of Latter-day Saints, medical marijuana legislation passed in 2018. The marijuana program in Utah may also provide the blueprints for other conservative states such as Idaho and Kansas for adoption.”

The federal front also is showing greater support for marijuana legalization. Lawmakers are being urged to hold a vote by the end of this month on a House bill to legalize marijuana. The Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, sponsored by U.S. Rep. Jerrold Nadler (D-N.Y.), would remove marijuana from the Controlled Substances Act and allow the federal government to tax it.

Amazon and Cannabis

Amazon recently announced it will no longer disqualify employees for marijuana use and will not include it in its comprehensive drug screening program. Amazon also recently threw its lobbying weight behind cannabis legislation.

Venosa said he has no doubt that this move will have important implications for the cannabis industry, especially considering Amazon’s $1.5 trillion market capitalization.

“This may encourage other companies across the country to adopt similar measures,” Venosa said of Amazon’s recent internal policy. “In addition, Amazon has indicated that it will support the MORE Act of 2021 and encourage other employers to do the same.”

Industry Consolidation

The recent Tilray-Aphria merger created the world’s biggest cannabis company. As the industry evolves and overcomes legal obstacles, Venosa said he believes we can expect to see more merger and acquisition activity, especially from ancillary companies that may want or need exposure in this space. Examples include companies like Altria (MO), which has a substantial stake in Cronos Group (CRON) and alcohol producer, Constellation Brands (STZ), which has a stake in Canopy Growth (CGC).

Investing in Cannabis Companies

The cannabis industry’s recent milestones and fast-paced growth continue to draw attention from investors. It’s easy to become excited about this sector, but it’s still critical to be selective in choosing which stocks to invest in.

When it comes to identifying the companies with the most potential, Venosa stands by his firm’s strategy.

“We provide short-term options plays to subscribers, which, depending on the strategy, could profit on an increase or a decrease in shares,” he said. “One of the utmost important factors for the public companies we follow is their liquidity on the exchanges. Factors such as average daily trading volume, market capitalization, open interest and bid/ask spreads aid us in determining which companies are positioned for success.

“Furthermore, we use technical, fundamental and sentiment analysis to aid our decision-making process and come to specific trade recommendations.”