Imagine investing in cannabis.
It’s not a foreign concept; there are many different companies. There are only six states where cannabis is fully illegal even though it's still classified as a Schedule 1 drug.
Now imagine the very same idea but in 2012, the same year when recreational use was legalized in the first two U.S. states.
We’ve come a long way — cannabis is almost too casual a conversation topic, like the weather or fishing. As of November 2020, 68% of Americans favor legalization.
The federal prohibition on marijuana is on the precipice of being lifted. But what does that mean for investors?
Well, let’s put it this way — in four short years, the cannabis market is set to grow to $41 billion by 2025.
Riddle me this: What investing topic would keep the pretty girl more interested at a party? I guarantee you that if you bring up investing and Elon Musk, she’s going to roll her eyes.
More than half of Americans are canna-friendly; you can’t deny the fact that it’s a more fun subject to bring up in a social setting when droning about numbers, bulls, and bears.
You’re not only well-versed in a market that is making headlines, but you’re well-versed in a market that’s putting money in your pocket.
Cool-guy status: achieved.
As cool as the market is, though, it’s a newer one. That means not too many people know the ins and outs, the dos and don’ts of the cannabis industry.
This is why you have to maintain a code of sorts.
So without further ado, here are the three tips on investing in cannabis.
This does not mean you are a canna-expert because your friend works at a dispensary and you sample their product from time to time.
Having a friend who knows a guy from California who has the “medicinal hookup” doesn’t deem you one, either.
Just take a look at the numbers — we’re going to compare 2019 and 2020, just for the fun of it.
In 2019, cannabis sales in just four states (California, Colorado, Nevada, and Washington) reached almost $6 billion.
The next year, one age group alone almost met that amount of sales (millennials, obviously). All together, cannabis sales reached over $8 billion in just those four states.
Shoot, Illinois started recreational sales in the very beginning of 2020 and reached $1 billion in sales by the end of 2020.
The pandemic was the kicker for such a drastic increase, though. What else did people have to do while locked inside? Rolling one up and watching Tiger King was basically how people existed for a good amount of time.
Right now, the global industry is set to reach $84 billion in the span of seven years, which means the industry will expand at a CAGR of 14.3% until 2028.
In summary, 2019–2020 has already shown that there’s a great likelihood of surpassing the estimates made for the industry, especially with New York having just legalized the recreational use of cannabis.
More exposure, more revenue.
That being said, 2020 didn’t magically wipe away black-market sales — which accounted for 87% of the total sales revenue of cannabis that year.
Arcview Market Research estimated $46.4 billion in black market marijuana revenue… in 2016. Even if you applied that number today, that means the global market is missing out on over $50 billion.
But for perspective’s sake, the legal sales predictions are roughly the same size as the craft beer industry.
Yes, we’re definitely missing out on a lot of revenue, but comparatively speaking, the industry is smoothly sailing along.
Just imagine going back 20 or even 10 years ago and telling your past self that you’ve invested in cannabis legally. You’d blow your own mind.
As a budding (pun half-intended) industry, you can find yourself scratching your head trying to figure out where to start.
Just because it says “weed business” does not mean it’s a legitimate business. A company bearing a logo with the telltale green leaf slapped on it doesn’t prove that it will be something fulfilling to your wallet.
What’s even scarier is that there are fake weed companies and then there are fake “weed” companies.
As in, there are companies that portray the part of the budding businessman and there are companies that manufacture synthetic seizure-inducing weed.
If you don’t do your proper research, you can make this mistake as easily as any other 420-friendly investor.
There are a plethora of issues you can face with companies — some you invest in may not pay dividends, or they could be in mounds of debt to the point where it could be years before you see any returns, or they’re just not popular.
Then you have to consider different sectors within the industry. Imagine Bubba from Forrest Gump listing off the different types of shrimp.
There are packaging, pharmaceuticals, CBD (which is the non-psychoactive strain), testing, marketing, consulting, transporting, and even legal sectors within the industry.
When doing your research, ask yourself what calls to you the most. If you want to stray from the flower, maybe look into the marketing aspect. If you’re feeling earthy and hands-on, the agricultural aspect of the industry may suit you.
Then ask yourself why people use it. Approximately 14% of adults use CBD products. That means they’re not using cannabis the “typical” way and instead are applying it to things like physical ailments. Of those adults, 40% use CBD for physical pain, 20% for anxiety, 11% for insomnia, 8% for arthritis, and 5% for migraines.
The beauty of a newer industry is that you can basically map out your journey at your will — but obviously AFTER YOU FIND A LEGITIMATE COMPANY.
I suppose this goes hand in hand with doing your research.
Keep in mind that competition is fierce — being the hot new pot company is a brand all on its own. The sketchier companies will try to cut corners in the hope of being ahead of the game.
In 2020, Canadian CannTrust was accused of growing flower illegally and earned a suspension on cultivating and sales.
Although previously listed under both the TSX and NYSE, the company’s suspension is progressing into a full delisting from both exchanges.
Another company, Curaleaf (OTCMKTS: CURLF), came under fire from the FDA for labeling its products as “misbranded drugs,” violating the Federal Food, Drug, and Cosmetic Act. In the blink of an eye, the stock price plummeted.
Since marijuana is not legal worldwide, cannabis companies can easily stumble into breaching state legislation or federal laws.
Marijuana is classified in the same ranking as drugs like heroin at the moment, and that sure isn’t a fact that sits well with anyone.
States basically flipping the bird to the feds and making their own pot rules is undoubtedly entertaining, so at least there’s a balance.
Plus, you can’t deny that the states that throw the biggest finger at weed laws see fewer drug-related crimes, a new job market opening up to the people, and even fewer traffic accidents. The best part? The federal government is doing nothing to stop the sales.
Colorado is a perfect example of this. Since green-lighting the sale of recreational cannabis (pun half-intended), 16.4% of the revenue that went to the state’s Marijuana Tax Cash Fund was spent on education. The state is fifth in the entire country in education.
Guess who’s fourth? Washington state. I wonder what they both have in common.
Canada is going into its third year of legalizing recreational marijuana. As of mid-2019, the cannabis sector added over $8 billion to the country’s GDP.
The lowest risk does seem to gravitate toward our Northern friends. I’m not saying things aren’t looking up for the industry — I’m saying since we have to be mindful of how each state handles cannabis laws, it’s a safer bet to look into somewhere more… consistent.
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I’ve been in the finance game for more than twenty years now. I’ve seen my share of booms and busts, and I’ve seen my share of raging bull markets and crushing bear markets. And I can tell you, in all those years, I’ve never seen an opportunity as lucrative as legal cannabis.
We’re talking about a product that needs no advertising.
We’re talking about a product that, despite what happens to the global economy, will always have plenty of buyers.
It really is some of the easiest money I’ve ever made, and I suspect this will continue for many years to come.
Now it’s time to ask yourself, “Where can I invest?”
Again, Canada is always a safer bet.
But there are also companies like Chicago-based Green Thumb Industries (OTC: GTBIF), which reported a massive 133.8% increase year over year in its last fiscal quarter of 2020.
British GW Pharmaceuticals (NASDAQ: GWPH) saw a sales growth rate of 69% for all of 2020. It may reside with our neighbors across the pond, but it is open for trade in the States.
The ropes are loosening as time goes by. Cannabis and cannabis-related companies alike will soon decorate the Nasdaq and NYSE more and more as time goes on.