The landscape of the marijuana market is changing. There’s no doubt about that.
Investors are being drawn in from everywhere as explosive growth in the cannabis market is predicted. However, since it is still a new concept there are many factors influencing the value of marijuana stocks, it can be overwhelming to some. But, it’s important to understand the basics to be able to make a sound decision when deciding whether the reward outweighs the risk when investing in cannabis stocks.
Considering Investing in the Marijuana Industry?
There is new legislation happening in many countries when it comes to marijuana. So, the increased interest in investing in cannabis stocks is no surprise. However, many still wonder if marijuana stocks are a good investment.
Below are some factors that will impact the profitability of the marijuana industry that every investor needs to be aware of.
The biggest choke-hold on the marijuana industry are the laws relating to it. Some states in the U.S. have legalized recreational marijuana but the DEA still considers it a Schedule I Drug. With this comes concerted efforts to eradicate cannabis cultivation.
This poses an interesting dilemma. State legislation is slightly less severe, but in comparison federal regulation isn’t.
While there is still heavy federal regulation, U.S. legal marijuana was reported to be a $10.4 billion industry in 2018. Showing that it can still be profitable if invested correctly. Additionally, the legalization of medical marijuana still presents a profitable opportunity.
The Black Market
The downside to state legalization of marijuana is that sales usually come with hefty taxes. When hefty taxes are applied, many worry that legal sales of marijuana may not climb as much as expected. This is a result of more cannabis users turning to the black market for tax-free purchases.
However, the impact of the black market and how it may impact the true return of investment should not deter investors from buying stocks. As many still expect growth, even in the face of state legalization, cannabis investments are something to consider.
Cannabis Stocks Going Public
By far the most persuasive reason to buy cannabis stocks is the increase of cannabis companies going public. By going public with their stocks, marijuana companies are able to raise extra capital to fuel growth and expansion. This provides serious profit potential for prospective marijuana investors.
In 2018, Canada legalized recreational marijuana. Legalization is said to be tied closely to sales skyrocketing and serious growth in the cannabis industry. In fact, Deloitte’s 2018 Cannabis Report found that Canada’s recreational cannabis market was roughly worth $1.34 – 2.75 billion in 2018. With this being said, if the U.S. legalizes marijuana, growth in the industry will be groundbreaking and stocks could skyrocket overnight. But, this is contingent on its encompassing legalization.
Many investors may be waiting to buy marijuana stocks until full legalization occurs because it seems like too much of a long shot. It should be noted that other countries are starting to loosen their marijuana laws, meaning the U.S. might follow suit. But, it is still a game of chance as there is no guarantee in what may happen or how cannabis stocks may be affected.
Additionally, it’s important to note that waiting for the legalization of marijuana is not a good investment practice. Investing after law changes won’t ensure the biggest return of investment. Although the landscape is unsure, it’s best to make investments as soon as possible.
Cannabinoid-focused biotech companies are not bound by restrictive marijuana laws. This is especially true for CBD-based companies. This is because CBD is non-psychoactive compared to THC-rich, psychoactive marijuana. CBD products are sourced from industrial hemp which farmers breed to be ultra-low in THC. In addition, CBD stocks may also have potential use in the healthcare industry in the future. As a result, CBD biotechs and hemp growers may gain access to a new profitable market.
This market is still projected to experience explosive growth with a predicted 2022 market value of $22 billion.
States still have to make regulations for industrial hemp production. State laws governing industrial hemp production and cultivation could impact the development and growth of certain CBD biotech companies.
What’s the Verdict?
When it comes to investing in marijuana stocks, it’s dependent on what risks you are willing to take as an investor.
Currently, there is ever-changing legal terrain surrounding marijuana. Coupled with a high-operating black market, the projected growth of the marijuana industry may be unfounded.
But, many countries are setting a global precedent by legalizing recreational marijuana. The U.S. might follow suit which could cause exponential growth in U.S.-based marijuana companies. Additionally, the marijuana industry has experienced growth despite tight federal regulation.
The trick to a successful marijuana investment is staying up-to-date on the latest news in the industry. This can help you better invest so you can see results. When you’re looking for information, visit Evolve ETFs to review more information and resources about Evolve Marijuana ETF (SEED) or Evolve U.S. Marijuana ETF (USMJ).
Eradicate cannabis: https://www.dea.gov/cannabis-eradication
U.S. legal marijuana: https://www.cnbc.com/2018/12/27/legal-marijuana-industry-had-banner-year-in-2018.html
New cannabis venture: https://www.newcannabisventures.com/cannabis-stock-index/
Deloitte’s 2018 Cannabis Report: https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/consulting/ca-cannabis-2018-report-en.PDF