Cannabis stocks got off to a hit start to the week following a CNBC story published over the weekend suggesting that a Joe Biden victory in the November election could open the door for the decriminalization of adult-use marijuana, potential rescheduling and other federal cannabis legislation.

Opposing Forces: On Tuesday, Cantor Fitzgerald analyst Pablo Zuanic said Canadian legal producers are dealing with two opposing forces in the market at the moment. First, they're battling ongoing cannabis price deflation that is eating into margins. At the same time, Zuanic said he anticipates demand growth will accelerate and the U.S. election could have “positive collateral benefits” for Canadian LPs.

“Canadian corporates have been able to export their know-how in industries such as mining and forestry, and the assumption is that some of the LPs will do the same in cannabis, so this should add further upside,” Zuanic wrote in a note.

In the meantime, Canadian recreational cannabis sales are accelerating. August wholesale data suggests 8% month-over-month sales growth, and Zuanic is expecting companies to report further acceleration throughout the third quarter.

In the longer-term, Zuanic is projecting the Canadia recreational cannabis market will grow to an annual run rate of between $10 billion and $11 billion by 2025. He's also projecting the Canadian medical cannabis market will be worth $410 million by 2024.

How To Play It: For now, Zuanic said risk for the Canadian LP stocks appears to be skewed to the upside in the near-term, but investors need to be cautious given the recent deflationary pricing trends.

Zuanic named Aphria Inc his top Canadian LP stock pick but he also has Overweight ratings for Aurora Cannabis Inc and OrganiGram Holdings Inc OGI.

Benzinga’s Take: Online prediction market PredictIt suggests Biden has a 65% chance of winning the election, but investors who remember 2016 know polls and gambling markets can certainly be wrong. Cannabis stock investors can help mitigate risk associated with the volatile industry by buying a basket of Canadian legal producers and U.S. multi-state operators that have high-quality balance sheets and leading market shares.

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