With attention-grabbing headlines about how Canada “nearly ran out of weed” after legalizing recreational marijuana, weed stocks seem to be a smart investment choice. Since demand is high right now and many new marijuana-related companies are going public, this market has opened up a potential new area for investment and growth.
According to a report by Arcview Market Research and BDS Analytics, cannabis is a $57 billion dollar industry worldwide. Yahoo! Finance projects that by 2022, the legal cannabis revenue in the U.S. will hit $23.4 billion.
This fast-growing industry is contingent upon policy updates and new legislation. After the 2018 midterm elections, 10 states have legalized recreational marijuana and 22 others have legalized medical-only use.
Despite these wins for the 420 community, the Drug Enforcement Administration (DEA) still classifies marijuana as a Schedule 1 substance, described as substances with “no currently accepted medical use and a high potential for abuse” plus the potential for criminal drug charges. Laws on possession and conviction in marijuana-related cases vary by state with pro cannabis groups advocating for lesser sentences and more leniency.
Even with the legal wrinkles associated with cannabis and cannabis businesses, many investors are seeing green with marijuana stocks. While cannabusinesses still struggle to open a bank account or apply for business loans, others are going public on the NASDAQ.
The industry is new and has the potential for great growth but lacks the stability of more established industries like construction or finance. Just as the bitcoin craze lured investors with the promise of something shiny and new, cannabis stocks are poised to be the new economic flavor-of-the-month.
When looking at investment options, there are are a two main categories to choose from cannabusinesses and cannabis-adjacent. Cannabusinesses derive most of their income from marijuana, such as growers or distributers. Your favorite edibles company may have a stock option or the new delivery company you use many soon be traded publicly.
Cannabis-adjacent businesses are companies that provide the raw materials for vapes, the fertilizers for growers or have one cannabis-based product in addition to a line-up of traditional items. Determining these businesses takes a little more research but, luckily, plenty of sources (like Forbes, Yahoo! Finance and the Economist) have given financial advice on cannabis stocks and done the research on cannabis-related businesses for you.
Cannabis-adjacent businesses are a potentially “safer” option because their income is not as dependent on legislation but, at the same time, they will not see as much growth from marijuana-specific events, like legalization. Likewise, medical marijuana companies may be more stable than recreational-only businesses because they have a larger base of potential customers.
What’s the best bet? Every stock market investment depends on your risk tolerance (how much you’re willing to lose or potentially gain), the amount of money you have to play with, and what kind of investor you are (passive, active, or somewhere in between).
While marijuana stocks seem to be the hot new thing, the bubble could pop and they could quite easily go the way of bitcoin and lose their shine in a few months.
