The Creation of a New Market
Marijuana is a burgeoning industry. Not only is marijuana becoming more culturally accepted; it is also becoming increasingly legal across North America. Canada recently became the second nation to legalize the use of marijuana, while 11 U.S. states have legalized recreational marijuana and 33 allow use for medical purposes. In addition, advocates promoting the use of marijuana and its benefits are working to push for its legality in states where its use is currently prohibited. And as the popularity of marijuana use increases, so does its investment potential. This has led to the creation of an entirely new market, and companies and individuals are eager to find their way in. Increasingly, that way in is through marijuana investing!
The Growing Popularity of Marijuana
Think of the growth the tobacco industry has experienced across the world. Marijuana could easily become the new tobacco. And in some ways it already has.
Cigarettes and tobacco products have rapidly become less popular as more of their health risks are exposed and as healthier alternatives continue to be released. The Centers for Disease Control and Prevention state that “Current smoking has declined from 20.9% (nearly 21 of every 100 adults) in 2005 to 14.0% (14 of every 100 adults) in 2017, and the proportion of ever smokers who have quit has increased.”
This is due, in part, to the growth of the marijuana industry. And as the use of marijuana by younger generations, particularly millennials, becomes more popular, it is inevitable that the industry will continue to expand. A 2018 Gallup poll found that 24% of adults aged 18 to 29 “report regularly or occasionally using” marijuana. The poll also found that 13% of adults aged 30 to 49 do use or have used marijuana. And this data is just based on a group of Americans surveyed. The numbers of national marijuana users could be, and most likely are, greater than the numbers expressed in this survey. All the more reason for marijuana investing.
A Big Market Full of Small Companies
The cannabis sector, since it is so new, is relatively small, creating incredible opportunities in marijuana stocks. However, this has also allowed for the emergence of hundreds of very small cannabis-oriented companies and a substantial amount of them are not worth investing in. These stocks tend to be extremely volatile and most of these small companies do not possess the infrastructure necessary to succeed. While they might bring you quick gains, they are not suitable for long-term investing.
Also, the marijuana market is not reliant on one product. Instead, sales of many new marijuana products such as CBD oils, vape pens, brownies, beverages, etc., have begun to diversify the market with products different from the original plant. Smaller companies simply do not have the production capacity to keep up with the demand for the variety of these products. Thus, smaller marijuana companies are not the best option for investors focused on long-term growth.
Marijuana Investing is All About the Future
The best strategy for investing in marijuana is to invest in the companies that are predicted to be the industry leaders of the future. These are the companies that do possess the capacity to produce a variety of different marijuana products and that have the ability to expand their markets across countries, not just states or regions. Avoid the small companies and invest in the ones that have the potential to lead the pack.
While not all U.S. states currently participate in marijuana commerce, they will gradually become more accepting of it as they see the market expand and the popularity of the products soar. So invest while you have the chance!
For more information about marijuana investing, subscribe to Cabot Marijuana Investor, authored by Cabot CEO and Chief Investment Strategist Timothy Lutts.