Is now the right time to invest in the Cannabis Industry?
As of this year, cannabis is legal in 29 states plus the District of Columbia, and the number is rising.
The Cannabis Stock Index is up 26.4% month-to-date.
~30,000 new cannabis companies have entered the space this year.
There is a noticeable trend here that seems to be pointing towards, yes.
Five years ago, Colorado and Washington legalized the adult use of marijuana, sparking what is now one of the fastest growing industries in the U.S.
The industry has since been growing at a 16% compounded annual growth rate.
By the end of 2020, it’s projected to double in size from $22 billion in 2017 to $44 billion.
U.S. Cannabis Industry Total Economic Impact: 2013-2020 in Billions (Marijuana Business Daily)
What was once a taboo is changing the minds of constituents and investors alike.
⅔ of the population is for the legalization of cannabis.
This year alone, 31% of americans will begin living in cannabis-friendly states.
Clearly there is a bright future ahead.
The growth is tangible, but the risks are substantial.
Cannabis is still federally illegal and labeled a Schedule I drug.
Some cannabis stocks hoping to make it big still have to wait for this to change.
Those that don’t still have to follow highly regulated state laws and some existing companies are limited in their ability to sell across state lines.
For investors, the opportunities to profit from a legitimate company who sells marijuana products are scarce.
For example, the U.S. Food and Drug Administration has only approved a grand total of three cannabinoid-related drugs: AbbVie (NYSE:ABBV), Valeant Pharmaceuticals (NYSE:VRX), and Insys Therapeutics (NASDAQ:INSY).
As mentioned above, upwards of 30,000 new cannabis businesses have entered the cannabis space this year.
This means a highly saturated market that investors have to shuffle through to separate the good from the bad.
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Your Stake in The Green Rush
So, how can investors get involved while reducing their risk profile?
One solution is to invest in companies that don’t actually touch the plant.
Just imagine the profit gained from those who sold shovels during the gold rush.
The idea is the same with ancillary service companies, supporting the industry’s growth while sidestepping a lot of the risk.
Cannabis businesses who support the industry with real estate, technology, equipment needs, etc., make up a large, yet often undervalued part of the industry.
It’s hard to pinpoint just how much money has poured into ancillary service companies supporting cannabis businesses, but the number falls easily into hundreds of millions.
These companies are benefiting from the industry growth and the extended freedom to sell products and services across the U.S.
But again, the space is crowded with startups, and it can be hard to decipher the promising from the weak.
One ancillary service company to look at is Scotts Miracle-Gro (NYSE:SMG) who generated 2.8 billion with 10% of the revenue coming from the hydroponics companies it acquired.
The spotlight is also on Doyen Elements, who just launched its IPO and is giving retail investors the opportunity to buy into it before the company’s planned stock market listing.
Doyen Elements has purchase agreements for 16 different businesses spanning across all areas of the cannabis industry.
Recently the company made headlines for beginning construction on a 234,000 sq. ft. grow facility, one of the largest in North America.
The company also plans to list on the OTCQX after the offering closes.
In closing, while there is a lot of risk involved when investing in the cannabis industry, the potential upside makes it well worth the research and diligence to find the right way to get involved.