Move over, bitcoin, because the world has got a new investment pet: marijuana stocks! Similar to the cryptocurrency trend that took the world by storm, the cannabis industry has caused some controversy. But, there is a difference; projected profits are much more believable when it comes to marijuana investing. The idea of seeing cannabis created millionaires is much easier to imagine! However, is marijuana investing really that simple and is it really all rosy? The answer is clear: of course, not.
But, let’s start with the advantages first.
The main reason investors have started to ponder whether marijuana investing could be their next venture is because of its vast potential. After all, who wouldn’t be tempted to put their money where their mouth is when it is widely believed that the international marijuana market will be worth over $30 billion by 2021! Another estimation sees the cannabis market’s worth skyrocketing and hitting $146 billion by the end of 2025. The numbers speak for themselves.
Not all is reflected in money matters, though. The rise of the industry is tangible in the number of workers who have been able to gain employment in the marijuana industry, and the jobs are on the rise. At the moment, there are almost 160,000 employees working full-time, while 340,000 more vacancies are expected to be filled in by 2022.
Of course, none of these would be possible without the legalization process. Uruguay and Canada have completely legalized marijuana production, sales, and recreational use, whereas the US can boast several states which have legalized recreational use, though they remain to differ when it comes to how much marijuana you can grow for personal use, or buy. Still, rumor has it that the industry is going to be joined by some big European players, and we’re not just talking the Netherlands. Germany and Italy may follow Canada’s suit, which would instantly create an enormous market, which, naturally, you could be part of if you invest in marijuana stocks.
So, everything seems nice and neat. Is there any potential danger, then?
First of all, the industry is still somewhat “young”, and it will take some time to be able to project how it will develop. There are stories of more states and countries accepting marijuana, both medical and recreational, and there is a new bill being introduced to the US Senate soon (Bill 420) that recommends cannabis be treated the same as alcohol, at a federal level. Despite this, no one can tell with certainty when widespread or global legalization will happen. Political talks are certainly promising, but if you are looking to make some quick cash you're looking at the wrong industry; this could take quite some time.
In addition, the cannabis craze may not be as straightforward as it appears. As a matter of fact, there is a very probable scenario where production largely outweighs the demand. Since a great percentage of new businesses fail in their first year, marijuana investors should be conscious of the negative possibilities of the cannabis industry. When looking at potential cannabis companies to invest in, understand that company's history and its trajectory.
Sometimes the success of a company comes down to which field, in particular, it's in. The marijuana industry is much, much more than just production and sales. Some of the investment categories include marijuana growers, distributors, royalty streaming, retailers, ancillary services, and cannabinoid-focused biotechs. Marijuana growers are by far the largest category and possibly the most profitable. On the other hand, they may face commodity risks, i.e. their product is not differentiated from others. The competition in the industry is fierce, and should the supply overtake the demand, that will create even bigger issues. In a nutshell, only the strongest will survive; those with the best products and the most recognizable brand. Eventually, the cannabis industry proves to be like any other in this respect.
Since investing is all about the money, you need to be aware of how marijuana investing can be affected by financial services offered to cannabis companies. Banking and financial services in the US are somewhat limited in their abilities to support cannabis companies due to the fact that selling marijuana is currently illegal at the federal level. Does the company you are thinking of investing in have enough capital to last?
At the end of the day, investing is a risk and marijuana investing is no different. It's so worth doing your research on the industry, where it is best to put your money, and if you see these companies in your portfolio long-term. In the words of Swami Vivekananda; "Take risks: if you win, you will be happy; if you lose, you will be wise".
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