From the rush over ‘.com stocks’ in the early 2000’s to the craze for flipping houses and then Bitcoin, investors have always been known to hop rather quickly on the next big thing. Sometimes, we win and sometimes, we lose, but that’s just the game, isn’t it?
Since 2017, one of the most-discussed investment sectors has been the cannabis industry. It was unthinkable even to be having a public business conversation about Cannabis back in the early ‘90s till 1996 when the state of California legalized cannabis for Medical use. Since then, we have seen a steady transformation in the sector where cannabis has gone from being a totally illegal substance to being accepted for medical use in 33 of the states and accepted for recreational use in 8 of that 33.
It’s been a booming season for the industry, and even though it’s still a schedule 1 substance according to the DEA and thus, effectively illegal at the federal level, the state acceptance has opened new vistas of profitability. The greatest breakthrough perhaps is Canada’s recent absolute legalization of cannabis for both recreational and medical use, making them the first G-7 nation to do so.
According to research by a San Francisco based cannabis research firm, ArcView Market Research; Cannabis sales will nearly triple in the next three years — from $7.4 billion today to nearly $21 billion by 2020, with a compound annual growth rate of 29 percent —
Exciting, isn’t it? Before you rush off and amend your portfolio to include an investment in the sector, you need to keep these at the back of your mind.
1. Watch Companies with Significant number of Patents
The increase in legalization of recreational use in the US and the full legalization in Canada does prompt some optimism even in the recreational market.
So, if you’re not averse to risk and intend to plunge in there, it will be wise to locate companies that have published reasonable patents and intellectual property over technology that is best-in-class or fundamental to the future of the sector. From Breathalyzers to packaging tech.
If you truly intend to invest in the industry, it’s necessary that you follow the trends, learn everything you need to know about how to invest in marijuana and keep your hands on the pulse.
2. There are many kinds of companies involved.
The cannabis industry is quite diverse already, and you need to understand the landscape if you’re to make a wise investment.
There are companies directly involved in growing/farming cannabis. There are those involved in the pharmaceutical business aspect, creating medical products from cannabinoid. Then there are businesses invested in the consumer products, real estate, consulting, and the technology around cannabis. All these sectors have experienced growth from the recent boom.
However, if you’re a risk-averse investor, you may make your decision by simply leaning towards the companies that do not actually touch cannabis. If that is the case, investing in consulting companies and real estate are safer strategies.
3. The Recreational Marijuana scene is still a bit sketchy.
That all of the big companies around Cannabis in Canada, the US, and the UK, including GW Pharmaceuticals, Aurora, and Cronos are all involved in medical marijuana business days a lot.
In Canada, there is a sophisticated, existing system to produce and distribute medical pot throughout the country and for export and we have yet to see which companies will be able to succeed in the recreational market. If you intend to go ahead and invest in companies that touch the product, it may be wise to stick to the medical marijuana market for now.