Marijuana as an investment class began to pick up steam in 2014. Interest in the sector continued to increase with the increased possibility of more and more states legalizing the use of medical marijuana.
As of now, 29 U.S. states and Washington, D.C., have legitimized the use of medical marijuana, although the federal government has yet to approve its usage, citing limited clinical trials to prove the drug’s medicinal value. Washington, D.C. and eight states have approved recreational marijuana.
A Lucrative Market Opportunity
The investment promise pot holds is backed by an enormous market opportunity. Marijuana sales in North America totaled $7.3 billion in 2016, according to Arcview Market Research/BDS Analytics. That number is expected to grow 33 percent to $9.7 billion in 2017. By 2021, sales are estimated to soar to $24.5 billion, representing a compounded annual growth rate of 28 percent.
Canada has already legalized medicinal marijuana and is on track to make recreational marijuana legal by July 2018.
The Methods Of Marijuana Investment
Investors can stake a claim to the opportunity presented by this sunrise industry through several avenues:
Pure-play marijuana stocks chosen after careful investigation and vetting. GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH) is one such company based in the U.K. that develops cannabis-based drugs. The company’s Sativex, its only product on the market, is used to treat spasticity in multiple sclerosis patients.
Cannabis ETFs such as the Horizons Marijuana Life Sciences Index ETF, which replicates the performance of the North American Marijuana Index.
Mainstream biopharma companies with a cannabis-based drug in the market such as Insys Therapeutics In (NASDAQ: INSY), which sells Syndros, a liquid formulation of cannabinoid dronabinol, used for nausea and vomiting in AIDS and cancer patients.
Stocks of companies exposed to the cannabis industry such as Scotts Miracle-Gro Co (NYSE: SMG), which recently bought businesses that facilitate hydroponics.
Marijuana Investing: Not Without Adverse Effects
The marijuana sector is not only competitive — there’s also the threat of a federal crackdown, which could happen anytime, given that the stances of the fed and the states on pot are at odds.
The massive opportunity has attracted several companies to the sector, although most of them are without a sound business model and credible operations. The stocks of these companies often do not trade on the main exchanges and instead trade as penny stocks over-the-counter, with thin volumes — a perfect recipe for disaster.