Looking for the next big growth opportunity? It might not be in artificial intelligence.

Artificial intelligence (AI) stocks have been among the best investments you could have held in your portfolio in recent years. Nvidia generated an incredible 675% gain in just two years and led the AI ​​charge in the markets. It is still a hot buy now as investors expect more growth from the business going forward.

But Nvidia and many other AI stocks now trade at significantly higher valuations than they did a few years ago. And these high prices can make it much more difficult to turn a strong profit from here on out. At the same time, these high-priced stocks are vulnerable to slowing market conditions and have more room to fall during a downturn than more moderate value investments.

Now may be a good time for investors to consider other stocks and growth opportunities, which may have much more long-term upside. An underrated sector to focus on today is cannabis.

Cannabis stocks have been struggling for years

To be clear, cannabis stocks have not fared well of late. In two years, the AdvisorShares Pure US Cannabis ETF (MSOS -2.88%) lost half its value. Despite the fact that the fund gives investors access to some of the best pot stocks in the industry, including names like Curaleaf Holdings and Trurelieve Cannabisfailed to attract much interest.

Investors have grown impatient with the lack of progress in efforts to fully legalize marijuana. Although there is talk of potentially reprogramming cannabis so that it is no longer considered as harmful as heroin, LSD, ecstasy and other Schedule I substances, this would be a long way from legalization and would not solve the industry’s problems .

Legalization would create a more favorable landscape for the industry, where companies from other industries would not hesitate to invest in cannabis, and pot producers could find it easier to borrow money from banks. This could facilitate much higher growth and lead to better revenues and profits, making cannabis stocks better buys. Unfortunately, that won’t happen anytime soon, but there is hope that there could be a change on the horizon.

Why the presidential election could revive the industry

The upcoming presidential election could provide a catalyst for the cannabis industry. Marijuana legalization could be a hot topic this year, given that a majority of Americans (57%) favor legalizing both medical and recreational marijuana use, according to data from the Pew Research Center. For politicians, it could be an opportunity to win over voters by focusing on the issue.

2024 US Democratic presidential candidate (and current vice president) Kamala Harris has said she is open to the idea of ​​marijuana reform, including rescheduling cannabis and full legalization. He also admitted to trying pot in the past.

Even former president and 2024 Republican presidential candidate Donald Trump seems to be embracing the use of cannabis. In a recent interview, when talking about Florida possibly legalizing marijuana, he said the state shouldn’t be “ruining lives and wasting taxpayer dollars by arresting adults with personal amounts of it.” It’s a positive sign that he might be more open to the idea of ​​marijuana reform if elected president.

Regardless of which candidate wins the upcoming election, there could be hope for marijuana legalization in the not-too-distant future, and optimism could fuel the performance of pot stocks.

Should you add stocks to your portfolio?

Investing in pot stocks will involve taking some risks, which is why it is not a suitable option for many investors. While there is upside potential, much depends on legal reform, which adds an additional layer of uncertainty and risk to the equation.

But if you’re willing to accept that, then buying shares of a diversified ETF like the AdvisorShares Pure US Cannabis fund can be a good option. With this fund, you could have exposure to some of the top US cannabis stocks that would benefit from any type of marijuana reform.

Pot stocks have taken a beating in recent years. However, if political candidates bring up the prospect of legalizing marijuana, it could generate some much-needed optimism in the sector and cause these stocks to rise again. If reform were to occur, there could be even more upside for cannabis stocks over the long term.