Could the green rush be the next gold rush? In the last few years, perhaps no other sector except technology has generated so much–well, buzz.
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Nearly two-thirds of Americans say the use of marijuana should be legal, according to a 2017 Gallup poll.
The marijuana industry is expected to add 200,000 new jobs in the U.S. by 2020, according to New Frontier Data, which provides research on the cannabis market.
Growth is expected for a long list of businesses, such as the cultivators and packagers of the plants, dispensaries for medical and recreational marijuana, not to mention companies creating products that use cannabis byproducts called CBDs. CBDs are non-pyschoactive derivatives of cannabis, which can be used for a variety of purposes. Health professionals have touted CBDs for their ability to help patients with inflammation, chronic pain, and depression.
Companies are also capitalizing on industrial uses for cannabis. This includes the production of hemp, which can be used to make fabrics and textiles, as well as its use as additives to health food and body care products.
There are now 29 states that allow doctors to prescribe cannabis for medical purposes, which can include helping to alleviate nausea related to chemotherapy, and stimulation of appetite for people who are chronically ill, among other health-related issues.
And it all makes for big business. Total legal sales of cannabis were about $10 billion in 2017, and are expected to grow to $24.5 billion by 2021, according to reports.
In January, California became the largest state in the U.S. to allow its residents to use marijuana for recreation, with a market of nearly $4 billion in 2018, according to reports. Eight states and the District of Columbia have in recent years legalized cannabis for recreational use.
“The U.S. is creating the first truly scalable cannabis industry, and the rest of the world is looking at what is taking place,” says David Rheins, the chief executive and co-founder of the Marijuana Business Association, a trade group based Las Vegas, devoted to the cannabis industry and cannabis business owners.
Despite all the excitement surrounding the sector, the cannabis sector still faces challenges. And while attitudes are changing regarding legalization, there are still issues surrounding marijuana and the law.
U.S. federal law still considers marijuana use and possession to be illegal.
In January 2018, for example, the U.S. Department of Justice reversed an earlier policy of non-interference in states that have legalized marijuana. That could make things more complicated for growers and sellers in these states.
As of 2018, banks, which are federally regulated, still can’t accept money from cannabis businesses.
Because of this, many budding companies may struggle to create bank accounts, accept debit and credit payments, and effectively navigate the tax system. Businesses in California and Colorado report challenges of dealing with a cash-heavy industry where the laws and regulations are slowly changing, but remain cloudy and unclear.
Nevertheless, lawmakers seem to be working slowly toward a resolution.
The Congressional Cannabis Caucus, a bipartisan group of senators and representatives, hope to resolve the conflict between federal laws that ban marijuana use, and the state laws that allow it.
Also in January, attorneys general from 19 states including Hawaii, Alaska, and Colorado sent a joint letter to members of Congress, urging them to introduce legislation that would allow legal marijuana businesses to access banks and other financial services companies in the U.S.
And momentum seems to be with the industry, especially as it’s already providing important tax revenue to states–since legalizing marijuana, Colorado has pulled in $500 million in tax and related revenue, according to reports. And that could ultimately add billions to federal coffers too.
Investors in the U.S interested in adding cannabis to their portfolios have a few options. They can purchase shares of stock in cannabis-related companies that are publicly traded on an exchange.
Another option is to purchase shares of a fund, which offers exposure to many companies leading the way in this growing sector.
Investing in Cannabis: Single Stocks
A single stock is just that, a share of ownership of a company. For example, investors can purchase shares of stock in companies like Cronos Group or CanniMed.
Investing in Cannabis: Exchange-traded funds
Exchange-traded funds (ETFs) are a basket of investments bundled into a fund that’s traded on an exchange like the Nasdaq or NYSE.
That fund owns the stocks within it and generally tracks an index – or group of investments that represent part of an industry or investment theme.
When you invest in an ETF you are effectively buying small fractions of the companies within that ETF. The fraction depends on the weights stocks held in that fund.
ETFs have become popular in recent years as they give investors the opportunity to invest in the performance of a group of stocks without having to buy every single stock in the fund or handpicking single stocks. Not only can this save time and research, ETFs can offer diversification, which many consider to be an essential investing strategy.
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