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Growing Industry: What Should We Look For?
The cannabis industry has been a hot topic in headline news for the past couple of years. Many investors dive into this industry because it’s trending but have no idea where to put their money or what companies are doing to get ahead. It’s important to know the basics of the cannabis industry and to keep up with the laws surrounding the use and distribution, since this affects the growth outlook for cannabis stocks.
Growth outlook. By 2022, legal cannabis spending is projected to reach nearly $31 billion worldwide. Experts predict that more than half of that will be spent within the U.S., as more cannabis industries enter the market and legalization initiatives continue.
More than marijuana. The cannabis industry is more than just businesses selling marijuana. There are a few types of cannabis businesses that all have a specific purpose. There are the “touch” companies that actually produce and distribute marijuana, biotech companies that create cannabis based medications, and ancillary companies that supply equipment for marijuana producers. There are also service based companies that provide consulting, new technology, and other services to these varying companies.
Economic growth. Besides the potential growth outlook for cannabis stocks, tens of thousands of cannabis industry related jobs have started, creating hundreds of thousands of new jobs. Real estate is also seeing economic growth, as the properly value of homes, in areas where sales of cannabis is legal, has risen.
Legislation. Although individual states can legalize the use of marijuana for medical or recreational use, it is still illegal under federal law. Marijuana is a controlled substance without a federally recognized medical benefit. States cannot transport marijuana beyond their borders.
Business isn’t easy. Curaleaf, a U.S. based medical cannabis company partnered with CVS to sell CBD items in their stores this year, but the FDA announced that this move would be illegal since marijuana has no federally recognized medical benefit. They aren’t the only company having these issues.
Over-the-counter market trades. Many marijuana companies trade in over-the-counter markets. Trading in these markets raises risk and many investors steer away from these small companies. The regulation of OTC markets is not as strict as the NYSE or Nasdaq, and many OTC companies never make it onto these exchanges.
Up and coming. The cannabis industry is growing in ways beyond retail. Job growth and creation, as well as the real estate industry have seen growth due to the cannabis industry. However, marijuana is still a controlled substance and seen as federally illegal, creating a barrier for companies to reach their growth potential. The future of the federal view on cannabis is unclear, but states continue to individually legalize it within their borders, hoping to send a message to the government.
https://www.investopedia.com/investing/top-marijuana-stocks/, Mrinalini Krishna June 25th, 2019
https://www.cnbc.com/2019/07/31/cramer-weed-industry-scandals-show-why-investors-must-be-selective.html, Tyler Clifford July 31st, 2019
https://thecannabisindustry.org/category/job-creation/, National Cannabis Industry Association 2019