A Case for Cannabis Investing

Rex Jiang |

Just a few years back, you wouldn’t have mixed the two terms, “cannabis” and “investing” in reputable wealth management circles, but shifts in legislation and the legalization of cannabis among some U.S. states and Canada are changing the playing field for intrigued, would-be investors.

Before considering any pot-derived move, it’s important to understand the vernacular of the cannabis industry.

Cannabidiol (CBD)
Popularized for the many perceived medical benefits of this molecule, CBD is the part of the marijuana plant that has no psychoactive properties. It is used to treat pain, seizures, nausea associated with cancer treatment, arthritis and more without the feeling of getting high which comes from the other molecule in marijuana called THC.

Cannabinoid
Chemical compounds found in the Cannabis plant that offers a variety of health benefits and act on the brain’s cannabinoid receptors in cells to repress neurotransmitter release. Tetrahydrocannabinol, or THC, is the most well-known cannabinoid due to its euphoric and psychoactive effects on your body (i.e.; the "high").

Medical Marijuana
Medical marijuana refers to the use of cannabis to treat chronic pain, nausea, anxiety, sleep apnea and more. Varying opinions exist about the actual health benefits of consuming cannabis. When used medically, marijuana is consumed via smoking, vaporizing, eating extracts or using topicals like lotions or sprays.

More Marijuana Vocabulary

Worth its Weight in Weed?

Humans have been using this plant for more than 1,000 years. Suddenly, millions of people are getting the opportunity to use it legally. That is a game-changer in our lives and for our wealth. But you need to know how to use it and how to invest in it. Mistakes in either your use or your investments can lead to volatility.

Our initial skepticism of so-called "pot stocks" is lessening. We are not late to the party... It is only just getting started. There were six major milestones that occurred in 2018 that won't be undone.

1. First, Canada legalized cannabis for recreational adult use nationwide.
2. Then the Farm Bill in the U.S. was signed into law. This legalized the hemp industry, the cannabis plant’s cousin, nationwide.
3. The U.S. Food and Drug Administration (FDA) approved Epidiolex, a cannabinoid-derived medication, for use in people with two forms of rare epilepsy.
4. Five cannabis companies listed their shares for trading on major U.S. exchanges placing two on the Nasdaq and three on the New York Stock Exchange.
5. Last month, a congressional committee approved a bill to allow legitimate marijuana businesses to have access to banks.
6. And finally, adult-use cannabis sales exceeded medicinal sales for the first time. All this took one year... and most of it happened toward the end of that year.

And globally those sales are up significantly.

According to the "2019 Update to The State of Legal Marijuana Markets" report released, Jan. 15, by Arcview Market Research and BDS Analytics, global consumer cannabis spending is expected to skyrocket by 38% in 2019 to $16.9 billion, up from an estimated $12.2 billion in 2018, $9.5 billion in 2017, and $6.9 billion in 2016.

Moreover, compound annual sales growth between 2017 and 2022 is projected to hit 26.7%, with the report calling for $31.3 billion in global marijuana sales in 2022.

Right now, 10 states and Washington, D.C. allow recreational use of marijuana.

The legal cannabis market in the U.S. accounts for only about $10.5 billion - or less than 15% of the total market. What that means is there's another $60 billion of illegal cannabis sales happening in the U.S. right now and as legal cannabis expands, the market share opportunity has ample room to grow.

Sizing Up the Pot Market

The opportunity in legal cannabis is even bigger than the Prohibition analogy suggests but consider the risks. 

We still have plenty of reasons to be cautious before investing in any cannabis companies. Many have been overly promoted by unknown managements with questionable backgrounds. In Canada, many began as mining companies and then turned into cannabis companies.
Before making any investment decisions, you need to do your research—we have already done the homework and can help you.

The market is huge, the companies are becoming "real," and support for full legalization in the U.S. is gaining traction.

You’re not late to the party if you’re just getting started, but like all commodity markets, cannabis is a resource.

When the growers flood the market, supply increases and prices fall. Researchers predict this may be about three to four years out, but it poses an industry risk for the longer-term investor.