As public opinion increasingly warms up to the idea of recreational cannabis, and more and more states and local municipalities in the U.S. decriminalize or legalize the substance in one form or another, investors everywhere are beginning to eye marijuana stocks with envy. Foraying into this legally-dubious market remains little more than an ambition to many, however, and these days countless investors have plenty of questions before they throw their financial weight behind aspiring marijuana stocks.
So, what should investors know when it comes to investing in marijuana’s unpredictable future? A review of the basics and of marijuana stock performances elsewhere shows that 2018 may just be the ideal opportunity to invest in marijuana stocks.
A blooming market
After decades of formal and informal prohibition, marijuana is finally growing up and blossoming into a widely-demanded recreational drug and medical necessity for many. In the United States alone, public opinion on pot has continuously climbed in the past few years, and the prospects of marijuana’s full decriminalization at a federal level have never appeared closer. Some investors are still cautious to back marijuana given the concerns that still surround its foray into the medical field, however, and others refuse to put their money where their mouths are when it comes to getting behind a substance that can still land you in jail in certain areas.
Rumors that the current administration would seek to financially and legally crack down on pot, for instance, has spurred many investors to shun marijuana stocks until such a time when friendlier politicians to the substance inhabit the oval office. Such a crackdown has never surfaced, however, and few legal analysts foresee any major changes to marijuana legislation in the coming years that could stymy future stock options, given current public opinion.
With the recent legalization of the substance in California, too, which includes recreational cannabis that could stand to be a boon to businesses, a new, massive market has opened up in the U.S. Elsewhere, in neighboring countries like Canada, for instance, investors are dying to exploit such legalization efforts, and stand to reap huge profits from cannabis-hungry US consumers.
The truth is that marijuana stocks are bound to climb as rapidly as marijuana’s prospects for legalization elsewhere in the coming years. The appetite for this currently-illicit but highly-coveted substance has skyrocketed in recent years, and consumers from incredibly disparate demographics have all made it clear they’re desperate for the substance to hit the markets.
A rare opportunity
With medicinal and recreational cannabis alike finding new appreciation in countless households across the US, not to mention in Europe and other established consumer markets, marijuana stocks present a rare and invaluable opportunity. Marijuana remains a risky commodity in some places, but it’s mainstreaming is rapidly providing opportunities for companies to reach new and eager consumers, many of whom are willing to pay top dollar prices.
Canadian trailblazers like the Canopy Growth Corp (TO:WEED) and MedReleaf Corp (TO:LEAF) have shown that lucrative profits await those who properly exploit this emerging market. With the existing market in the US dominated by small players who are themselves waiting for the market to become more legally-predictable, investors who back the established players who now stand to become tomorrow’s leading, market-dominated companies could reap serious financial dividends for years to come.
That doesn’t mean marijuana companies face an easy road towards widespread legal acceptance and financial success, however. Investors should be particularly cautious with this product, given the legally dubious haze that surrounds it in many parts of the nation that have yet to warm up to it, and those looking for safe investments that will yield small, gradual trickles of revenue should be encouraged to look elsewhere. Marijuana isn’t as risky as it once was, but the market remains clouded with uncertainty and shackled by public misgivings, particularly when it comes to how the industry will manage marketing products to children.
Investors are thus well advised to be particularly selective with which companies they back, and should keep in mind the image problems that necessarily come with any industry like smoking, recreational drug use, or pioneering medical treatments. Besides looking for the usual strong indicators of future stock market success, like consistently growing revenue and relatively low levels of debt, investors will want companies that market themselves confidently but subtlety to a public that’s rapidly warming up to a product, but hasn’t fully embraced it yet. Keep your wits about you, and your eye on the long-term results that will inevitably arrive when the public has fully backed this lucrative substance. Don’t fall for the hype that says every company that dabbles in the marijuana market is bound to be tomorrow’s big tobacco; the marijuana market may yet become one of tomorrow’s most vibrant, but in its emerging years, investors should start slowly, and nurse their ambitions over time.