There’s money to be made by investing in the marijuana industry
Nov 07, 2018 09:16AM
By Kathleen Maris
By Jeff Herman
Despite its taboo nature for generations of American investors, the marijuana industry has recently fought its way into becoming one of the most sought after stock investments.
Cannabis companies, selling both medicinal and recreational pot, have caught the eye of investors around the world, especially here in the United States and Canada, which just became the first country in the world to completely legalize recreational marijuana.
Predicting that sales will skyrocket, investors have instinctively begun positioning themselves in marijuana stocks hoping to capture early profits spilling from this emerging market.
Here in the U.S., the drug is illegal on a federal level, but the government has decided to let each state make the decision individually regarding legality. As it stands, nine states offer legal recreational marijuana and another 30 states offer it for medicinal purposes only.
Even with a cloudy legal outlook, sales in the U.S. have jumped dramatically; according to Arcview Market Research, sales topped $9.7 billion in 2017 and are projected to hit $32 billion by 2022.
So, if legalized cannabis is the future, how can investors capitalize on this potential wealth creation opportunity? There are three primary areas that marijuana stock investors could consider as an investment option.
Manufacturing and Distribution: Marijuana growers cultivate, harvest, and distribute to customers.
Infrastructure: Providers of ancillary products and services that support marijuana growers; think warehouses that serve as farms, tables, lighting, and temperature control systems.
Mergers and Acquisitions: Publicly traded companies in the U.S. are under a strict regulatory environment. They just can’t go out and start a division focused on a federally controlled substance, but they can invest in or buy other companies.
Each area brings a myriad of options in terms of investing and questions. For example, choosing to invest in a biotech or drug company allows you to ride the marijuana trend without incurring total exposure to the plant.
Also, look at companies that are dabbling in the marijuana industry while keeping their feet firmly in their old markets; e.g., as smoking rates have declined across the world, will tobacco companies look toward this new area for potential growth?
As far as ancillary products and services are concerned, it’s been quoted many times that “the only people who make money in a gold rush are the merchants selling picks and shovels.”
Some very recent actions have shown us this is a fast-moving opportunity. As this new market has started to become mainstream, some of the biggest companies are also trying to join in on the growth. Johnson & Johnson recently finalized a deal with two cannabis firms that will take over the company’s Canadian labs for the exploration of medical marijuana products. Meanwhile, Constellation Brands, the world’s third-largest beer maker, has started producing a line of cannabis-infused beers intended for Canadian cannabis enthusiasts. It feels like a tipping point for this new industry.
A quick Google search on marijuana stocks will show plenty of options for investment, but a different option may be to invest through an exchange traded fund (ETF), an investment product that will hold many different companies that are centered around the cannabis industry. By investing in such a product, clients may be able to diversify across all three sectors mentioned.
While marijuana investment may seem a little out of the ordinary right now, it should be treated no differently than any other investment. Before putting all their chips on the table, investors must do their homework.
What started as a persecuted activity has suddenly unfolded into a modern-day gold rush. Do your research, seek the options, and familiarize yourself with the facts. The marijuana industry is still in an infancy state, so keep your eyes on the long-term benefits instead of what could create fast money in the short term. The probability of a prosperous future is high (pun intended).
Jeff Herman, a 25-year veteran of the financial services industry, is an equity partner with Wagner Wealth Management, LLC. He can be reached by email at Jeff@wwmadvisors.com. Securities offered through Triad Advisors, LLC Member FINRA/SIPC. Advisory services offered through Wealth Management Advisors, LLC. Wealth Management Advisors, LLC is not affiliated with Triad Advisors, LLC.