If you're not sure where to begin when it comes to capitalizing on cannabis, you're not alone. But it's not hard to learn the legal landscape and develop an understanding of some of the best pot stocks available. Cannabis is the latest hot commodity to take markets by storm, and many public companies are benefiting from global growth in new markets for recreational and medical marijuana, as well as hemp and cannabidiol, also called CBD.
In 2018, global cannabis sales reached $12.2 billion. In 2019, sales should soar to $16.9 billion. Some analysts estimate that annual marijuana sales could eventually reach $166 billion. While sales likely won’t approach that figure in the next ten years, it’s still clear this opportunity is huge.
Marijuana is legal for medical use in more than 40 countries and for recreational use in Canada and Uruguay. In the US, 33 states have legalized medical use, and 10 states allow recreational use.
But on a federal level, marijuana remains illegal in the US. Future sales growth will be driven by new markets opening, new products, pot companies scaling, and the growth of the U.S. hemp market. It has seen explosive popularity since President Trump signed the US Farm Bill, legalizing hemp products like CBD.
First, is the Pure Play approach, in which you invest in a company directly involved in the marijuana or hemp industries.
The biggest marijuana producers, all based in Canada, are Canopy Growth), Aurora Cannabis, Cronos Group, and Tilray. But they’re not the only pure way to play the market.
Charlotte’s Web sells CBD oil, which doesn’t elicit the “high” effect marijuana is popular for. And MedMen operates North American marijuana dispensaries, and its seven California facilities make more in sales per square foot than Apple or Tiffany & Co.
For investors interested in profiting from pot ancillary products, KushCo generates all its revenue from the cannabis industry by selling marijuana packaging solutions.
The second way to invest in marijuana stocks is by looking at established companies that have ventured into cannabis either directly, or indirectly. This strategy exposes investors to cannabis’ upside while protecting returns from the risk that sustainable growth doesn’t pan out.
For example, Corona maker Constellation Brands invested $4 billion into Canopy. Molson Coors Brewing and Anheuser-Busch InBev are also exploring CBD-infused beverage ventures. Cigarette maker Altria bought a 45% stake in Cronos Group. And the e-commerce platform company, Shopify also enjoys growth from online cannabis sales arrangements with governments and pot companies.
When analyzing cannabis stocks, consider the usual core metrics you’d look at for any stock, including revenue growth, net debt, and earnings history. Next, you’ll want to get a feel for how much the company stands to gain or lose from its foray into marijuana.
Compare its revenue from existing operations and make sure you understand just how big its bet is on the marijuana market.
Finally, know the market and its risks. Only buy cannabis companies you understand.
Not surprisingly, the marijuana market is just like any other industry. You need to understand what you own, otherwise, you’re just speculating – not investing.
Cannabis legalization is sweeping over North America. 10 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.
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(Featured Image by geralt)
First published in ru.investing a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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