With friendly regulatory environments around marijuana usage for medicinal and recreational purposes in countries like Canada and the UK, investors are turning to cannabis stocks for short and long-term gains. But why invest in cannabis stocks right now? This article provides the answers to help you make informed investment decisions.
The Evolution of the Cannabis Market
The global cannabis industry is projected to grow from about $11 billion in 2018 to about $154 billion by 2027 based on data from Businesswire. When New Mexico started the legalized trading of marijuana for medical use in the 70’s, these market predictions would have seemed unachievable due to the stern regulations against the use and consumption of cannabis.
Nonetheless, the global cannabis market has grown massively in recent years because of friendly regulations from more countries on the study, research, and usage of marijuana.
For instance, residents of Canada, the UK, and Germany can now use cannabis for medicinal and recreational purposes legally. So, the general outlook toward the plant has changed over time. Because of these developments, more people now see the marijuana business as legitimate and investment-worthy.
Today, more retail and institutional investors are pumping millions of dollars into various cannabis stocks. However, in the U.S. cannabis is illegal at the federal level per the Controlled Substances Act (CSA) of 1970.
But the recreational use of marijuana is legal in 23 US States, including Nevada, Alaska, Colorado, Oregon, and Washington. Because of this, there’s a general belief that the federal legalization of cannabis in the US will happen soon.
The Financial Landscape of Cannabis
Due to the rising interest in legalized marijuana cultivation, processing, and consumption for medicinal or recreational use, cannabis-focused companies are building a formidable market. As such, we now have a professional cannabis market with various stocks, exchange-traded funds (ETFs), mutual funds, bonds, and other investment opportunities.
The investment opportunities are powered by marijuana-focused companies, and their demand and supply constitute the overall financial landscape of the cannabis industry. These companies are publicly-listed on the world’s largest stock exchanges, such as the New York Stock Exchange (NYSE), NASDAQ, and the Toronto Stock Exchange (TSX).
Interestingly, there’s no one-size-fits-all when it comes to investing in cannabis, as these companies have different classifications with their unique investment offerings.
For example, companies like Curaleaf Holdings operate at the cannabis production and distribution level. So, if you’re interested in investing in such companies, you can buy their individual stocks.
There are also companies offering ancillary services like packaging, materials, marijuana cultivating resources, and other tools. An example is GrowGeneration, a company offering unique investment opportunities for its class.
However, more investors are now tilting toward cannabis-related ETFs because they are safer. With cannabis ETFs, you can diversify your investment portfolio by combining multiple cannabis-based stocks.
The Profitability Question
When thinking of the question, “Why invest in cannabis stock?” The primary reason is that investors want to understand what’s in it for them. Like every other investment, everyone is in it to make money, so profitability is germane.
Before delving into the profitability assessment for 2023, it’s essential to review how the cannabis market has been compared to other financial industries.
Back in 2020, after the election of President Joe Biden, there was high optimism among cannabis investors and consumers that the Senate would reach a favorable decision about marijuana use.
As a result, the cannabis market reached an all-time high, with investors getting massive gains. But in 2023, the cannabis market has cooled due to regulatory uncertainties. However, as with the general stock market, rising interest rates, inflation, and other macroeconomic issues are other significant reasons pot stocks are no longer hot.
Currently, cannabis companies in the U.S. and beyond are experiencing massive downtrends, with experts suggesting that the current marijuana market is suitable for long-term investments.
Everyone is waiting for the market to rebound in the long run, but green investors looking to diversify their portfolios can consider the best-performing cannabis stocks like Tilray Brands (TLRY).
Challenges and Considerations
Before delving into the challenges facing the marijuana industry, it’s crucial to note that cannabis companies either function in the medicinal space by providing cannabinoids for different medical uses or distributing marijuana for adult recreational use. However, both categories encounter the same challenges.
We highlight some of the potential risks of investing in marijuana stocks below.
Overproduction
Due to the sharp drop in the demand for cannabis products and stocks after the market downturn, there’s an oversupply of products and a crash in prices. Invariably, the current market realities caused a decline in the value of cannabis stocks, hurting investors’ earnings.
Price Drops
The fall in the demand for cannabis stocks has resulted in price drops since businesses are experiencing oversupply. As such, cannabis companies that rely on only marijuana sales struggle to generate cash flow. Investors who back such companies will likely get negative returns.
Regulatory Uncertainties
With uncertain regulations, cannabis businesses struggle to operate or collaborate with other institutions to eliminate bottlenecks. For instance, banks refrain from working with cannabis-focused companies in the US because federal laws consider them illegal.
Some investors also avoid the industry for this reason. However, there’s massive potential for the future, as the markets will most likely stabilize off the back of friendly regulatory frameworks from the US government.
The Future of Cannabis Investments
Nations such as Canada, Germany, and the UK have taken steps to decriminalize marijuana. In the U.S., states including Nevada, Alaska, and Arizona have made similar moves. As the American government considers legalizing cannabis, projections suggest a significant upswing in the marijuana sector in the foreseeable future.
The trend indicates that more states in the U.S. and other countries globally will welcome cannabis-based businesses. This will drive a surge in demand for cannabis goods, shares, ETFs, and diverse investment avenues, appealing to both individual and institutional investors.
It’s vital to note that the cannabis industry is still in its early days, and might not align with the preferences of conservative investors. Investors with high risk tolerance can, however, find different opportunities in the cannabis space.
However, it’s important not to see cannabis investments as a get-rich-quick- scheme, as people willing to patiently wait for the market to rebound will more likely enjoy massive gains in the long-term.
You can read our article on how to buy cannabis stocks to guide you through the process when you’re ready to begin your cannabis investment journey.
My Final Thoughts
It’s been a challenging year for cannabis investors and businesses due to the downward trends impacting marijuana investments. Still, there’s a projection that global cannabis sales will increase from $13.4 billion in 2020 to $148.9 billion by 2031, providing answers to questions like, “Why invest in cannabis now?”
This article has highlighted why considering cannabis stocks, ETFs, and other investment opportunities may be favorable for investors. However, these opportunities are best suited for long-term investors because market recovery isn’t imminent.
Nonetheless, we recommend continually researching the market for the best investment options. Also, stay up to date with market trends to ensure you have suitable investment strategies.
FAQs
Why are cannabis stocks down?
Cannabis stocks are down because of the falling demands resulting from the lack of legalization in the US. Since the use and sale of cannabis for medicinal or recreational purposes is considered illegal by the federal government, the cannabis industry is high-risk for retail and institutional investors.
Is it a good idea to invest in cannabis stocks?
Investing in cannabis stocks can be a good option for long-term investors. Since the industry is relatively new and facing major regulatory issues, returns may take some time. However, do your research before investing in any marijuana stock, as the market is largely speculative.
Are cannabis stocks good in the long term?
Experts believe cannabis stocks can be profitable long-term investments as the market slowly stabilizes. As such, long-term investors who buy and hold cannabis stocks and ETFs can realize significant gains if the market returns to bullish days.
Is it worth investing in cannabis ETFs?
Currently, the marijuana market is down, but investing in cannabis ETFs is a viable option for speculative investors. Investing in single cannabis stocks is riskier despite the potential high returns. But cannabis ETFs can help you spread your investment across a basket of stocks, resulting in fewer risks.
How risky are cannabis stocks?
The cannabis industry remains largely uncharted because it’s relatively new. As a result, cannabis stocks are highly risky with lots of pitfalls. Therefore, you want to research thoroughly before investing your money in marijuana stocks and other related investments.
Is there a future for cannabis stocks?
Despite its current realities, the future of the cannabis industry is optimistic. Experts believe the global cannabis markets will experience exponential growth over the coming years. So, cannabis stocks are here to stay – and you can expect an exciting future for them.
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Why You Can Trust The Marijuana Index
The information provided on Marijuana Index is solely for educational purposes. The selections presented here are the product of meticulous analysis by an experienced financial analyst. However, it’s crucial to remember that these choices may not universally fit every portfolio.
Before making any investment decisions, we strongly encourage you to conduct thorough research. This ensures that any potential investment aligns with your unique financial goals and risk tolerance.
As of the date this article was written, the author does not hold any positions in the stocks or ETFs mentioned.
We do not provide personalized financial advice, advisory services, or brokerage recommendations. Nor do we advocate for the purchase or sale of specific stocks or securities. Please be aware that performance information might have changed since publication, and past performance should not be seen as an indicator of future results.
Investing in cannabis stocks carries its own set of risks, reflective of the evolving legal landscapes and market volatility inherent in this industry. As an investor, it’s essential to be aware of these risks and consider them carefully in your decision-making process.
To understand more about our commitment, we encourage you to learn more about us. If you have more questions for our cannabis specialist editors, do not hesitate to contact us. You can also send us a tweet at @Marijuana_index. Stay updated with the latest cannabis news by subscribing to our Newsletter.
Tobi Opeyemi - Financial Writer
Tobi, a journalist and crypto writer since 2017, is renowned for his educational content in the digital currency realm. His journey includes a significant tenure with Stockbossup, an investment platform committed to enlightening the black community on financial matters. Before this, Tobi honed his skills as a copywriter at Turboxbt, a platform specializing in cryptocurrency trading. Notably, Tobi's insights are featured on Investopedia, where he contributes articles on a range of topics. He is also celebrated as one of the top web3 creators on LinkedIn, known for content that consistently drives engagement and sparks conversations in the industry. With a background in Pharmacy, he brings a unique perspective to his writing, especially in the Cannabis sector.
