By Vivien Diniz
It was not too long ago that selling marijuana could grant you a one-way ticket to the big house. But now, as more states move forward with legalizing marijuana, that trip to the big house can turn into a trip to the bank.
The legalization of marijuana in the United States has lit a spark with investors who are turning their focus to the small — but rapidly expanding — medical marijuana industry.
“Everybody is running toward this as the next entrepreneurial wave — the green rush,” Robert Frichtel, CEO of Advanced Cannabis Solutions, told Bloomberg Businessweek in a January interview.
But just how big is the legal marijuana market? Since the beginning of the legalized marijuana industry, the sector has seen significant growth. In fact, a recent report by leading marijuana industry and investment research firm, ArcView, sales of legal cannabis climbed 17 percent to $5.4 billion in 2015 and look to be growing an even more significant 25 percent in 2016. That said, the investors could see the market swell to a $6.7 billion in total sales.
More significantly, investors could expect to see legal market sales grow to $21.8 billion in 2020, with adult use sales accounting for over half of the total market.
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A long-term play?
Though investing in marijuana sounds like a lucrative opportunity, market watchers are calling it a long-term investment.
That is not to say that making money right now is an impossibility. A recent Globe and Mail article points to several stocks, including Hemp Inc., Advanced Cannabis Solutions, Medical Marijuana Inc. and GW Pharmaceuticals, all of which have gained on the S&P/TSX Composite Index in the wake of the “green rush.”
However, as with any new opportunity, there is always a fair amount of risk. For the marijuana industry, those risks and challenges include the overarching decriminalization of marijuana at the federal level in the United States, among other regulatory threats.
But looking beyond the bureaucratic red tape still left to be cut, it should be noted that the industry is still in its early stages, meaning that — like any other investment opportunity — penny stocks are a risk. The Financial Regulatory Authority even issued a warning in January for investors to be on the lookout for marijuana stock scams.
Overall, however, it seems that despite the any concerns market watchers might have, the cannabis industry isn’t going to go up in smoke any time soon.
“Business is very good,” Robert Frichtel, told The Globe and Mail. “We are in the early stages of what’s going to be a very large industry over time.”
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Over time is what investors should be considering, it seems, when looking at marijuana investments. Alan Brochstein, a financial analyst in Houston who runs 420investor.com, told the Globe, “[e]verybody wants to get rich real quick, and that’s not the best way to look at these companies … You need to think long term.”
“It’s a multibillion-dollar industry,” Brochstein said. “These companies that people can buy right now are just a teeny, tiny fraction of the industry. They get a lot of focus because people can invest in them, but the reality is that better companies are going to be what you want to invest in. It’s just a question of when they come.”
Wall St. Cheat Sheet echoes the sentiment that investors should steer clear of marijuana stocks — at least for the moment — as prices are especially elevated. Instead, the publication suggests that those investors who cannot ignore the high of the speculative investments look for companies that are “poised to capitalize on the evolution of the market.”
For investors getting into the market, the Investing News Network recently had a look at some publicly traded cannabis companies. Check out our recent interview with Derwin Wallace of Cannabis Investor Webcast for his thoughts on North American cannabis stocks.
Investors looking for what to expect in 2016 can have a look at our recent cannabis investing outlook.
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Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any of the companies mentioned in this article.
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