Investing in Marijuana – The New Trend?

Last Updated: May 22, 2019
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Forget about getting high and making joints; we are talking about business and investing. Investing in Marijuana is the hottest trend of 2017. Why is it?

The Smart Investor content is intended to be used and must be used for informational purposes only. We are not an investment advisor and you should NOT rely on this information to make investment decisions .

Consider an investment in the new cannabis sector?

In April this year, West Virgina became the 29th state in which the use of marijuana (for medical purposes, of course) is legal.

This development reflects two major trends: the desire of people to legalize cannabis and the rapid growth of the legal marijuana sector.

Why Investing In Marijuana?

Forget about getting high and making joints; we are talking about business and investing. The use of medical marijuana has been known to humanity for thousands of years, virtually.

Why not invest in this opportunity? What are the main reasons for it? Are there any pitfalls down the road? Which are the best stocks in the market?

Let’s look at it in detail:

Increasing Desire To Legalize Cannabis

The first reason is that cannabis is becoming legal in more and more places. The more states and countries accept marijuana, the more clients and customers there are. This consequently will increase the demand and you can make a profit as an early investor.

Why Now?

America definitely supports the legalization of marijuana. Gallup 2016 survey revealed that 60% of Americans would like to see weed legal. In distant 1969, only 12 % of people backed up marijuana.  However, some 26 years later, in 1995, the percentage increased to 25%. The 2013 and 2015 polls showed that 58% of the US citizens supported the idea. This shows that it’s not a day-to-day process but rather a process continuing decades

Medicinal Use

Another reason is the medicinal use of marijuana. As previously mentioned, this drug has been used for thousand of years as a medicine.

In this article, Business Insider has listed more than 20 conditions, which marijuana improves or alleviates. Some of them include epileptic seizures, glaucoma, slow metabolism, etc.

Rapid Growth

Invest in the industry phenomenal growth. The legal marijuana market is expanding rapidly.

According to an ArcView Market Research in 2016 legal cannabis sales reached $6.7 billion, a 30% increase compared to 2015.  The sector is expected to grow by 25% through 2021. Bloomberg predicts that the industry will reach $50 billion by 2026.

New Area Of Investment

It’s a novelty as an investment opportunity is definitely one of the reasons to invest in the sector.

Real estate, bonds, gold, and funds – these all are traditional investment options. Indeed, buying stocks of companies dealing with cannabis is riskier but also promises a higher profit.

Things To Consider Before Investing

Even though all the above-mentioned reasons sound solid, we have to try to be as objective as possible. There are so many dark rooms in the house that investors should be warned about, in addition to the regular common mistakes of investors.

Keep in mind:

There are still many people who oppose the complete legalization of marijuana. The same research that showed 60% of Americans back up the use of medical or recreational cannabis, revealed that Arizona voted against. What’s more, not surprisingly, only 45% of senior citizens (above 55) support the legal pot.

Another thing to think about is the murky past of this sector. Apparently, there is a transition process going on: from the black market to a relatively regulated and legal sector. A large number of the stocks are traded on unregulated exchanges. This increases the possible profitability as well as the related risks.

And what’s worse?

There are many scammers out there waiting to steal your money. Here is a link to a US Securities and Exchange Commission warning on investing in cannabis.

In addition, as any other growing market, the legal pot industry is virtually hatching new and new companies every day. They all want a piece of the cake, but this cake is not a renewable source of money.

The Best Marijuana Stocks

After discussing some pros and cons, let’s see the best stocks out there:

Cara Therapeutics

Biotech company Cara Therapeutics specializes in drugs, which alleviate pain and “pruritis” (this means itching.) Currently, the firm is in the process of developing a marijuana-based drug. The company boasts a market cap of $525 million.

In May this year, the price of the company shares increased by 17% only for a week.  What makes this share so special. Well, the company is well-established and people.

Scotts Miracle-Gro Company

This one is an unexpected choice. The company sells and manufactures lawn and garden-care products, including a pesticide which kills insects on the plant. They also manufacture different tools to help people grow cannabis.

The market cap is almost $5 billion and the earnings per share stand at 4.66. The company showed great financial performance during the first quarter.

AbbVie Inc.

Even though this pharmaceutical company does not strictly specialize in cannabis-containing products, it has launched a drug based on marijuana – Marinol. The product is approved by the US Food and Drug Administration (FDA).

AbbVie has a market cap of $110.7 billion, a price to earnings (P/E) ratio of 16.8, and earnings per share (EPS) of $3.86 as of June 2016.

Bottom Line

Investors tend to foresee trends and make the best use of them. Undoubtedly, the marijuana sector has been hot for some years now.

But the difference between baking and burning is sometimes crucial. Before investing do your homework: research the market and the companies you’d like to put your money into.

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