The news on marijuana is mostly positive as of late with loosening legalities around medicinal and recreational use headlining. Canada is on the verge of a legalized recreational marijuana market for Fall of 2018 and Americans are starting to relax following Trump’s insistence the States decide internally how to legalize marijuana use. With Sessions backing down from his holy crusade against cannabis and more and more States legalizing marijuana for medicinal use, hopeful investors in marijuana stocks may find this is an ideal time to buy up marijuana stocks while the legal industry is in its infancy with hopes the market will boom with near-future profits.
How does the market for marijuana stocks really look right now?
Depending on what country is up for review, the picture of the marijuana market looks favorable or questionable. Most eyes are looking to Canada for new investment opportunities as the marijuana businesses in the country scramble to increase supply in the wake of the legalized recreational market. The expectations are high for demand.
Some of the leading Canadian cannabis companies with the greatest potential for production capacity are turning heads in the world of stocks; at the top of the list are Canopy Growth (NYSE:CGC), Aurora Cannabis (NASDAQOTH:ACBFF), and Aphria (NASDAQOTH:APHQF). While these companies largely are already on the Toronto Stock Exchange, most American cannabis companies are privately owned and relegated to the volatile penny stocks arena. The one exception to this is Canopy Growth which was recently listed on the New York Stock Exchange.
The potential for oversupply in Canada could bode well for the market and for marijuana stocks investors so long as the international market makes use of product.
The legal adult-use marijuana market is still new and it would be impossible to predict what will happen to marijuana stocks from a supply and demand perspective. Considering Canadian cannabis cultivators are crossing their fingers for overseas businesses to buy up the potential excess (numerically speaking, approximately 1+ million kilograms) over the next two years, it’s hard to say how well this will work for investors getting started with buying marijuana stocks today.
One of the unique hurdles many American marijuana stocks businesses must overcome is access to banking.
The banks are more than happy for the business; however, the legalities surrounding the issues of marijuana use and sale prohibit most financial institutions from engaging in this market.
Criminal and/or financial repercussions for allowing a checking account or offering a line of credit to a marijuana business have held the banks back from engaging with the industry. To make matters worse, the U.S. Senate Appropriations Committee recently voted against a banking amendment which would have permitted banks to do business with marijuana companies in compliance with state laws.
When assessing any company’s stock to buy or invest in, it is critical to review the company practices, management, past performance, etc. What many traditional companies on respected exchanges such as NASDAQ and NYSE do not face is limited access to banking resources. While business is viable in countries like Canada and Germany, the United States lacks a legal market on a national level to back up small, privately owned enterprises.
Among the other obstacles marijuana stocks businesses face is the federal government.
Even though the drug is “under the gun” (so to speak) with the feds, the government will still tax marijuana business’ income in states where cannabis is legal. Additionally, marijuana businesses are prohibited from taking out typical corporate income tax deductions which has the potential to result in a 90% income tax rate.
However, the legal U.S. medical marijuana market brought in $8.5 billion last year alone. That’s a lot of green for a struggling product in terms of national legality, especially considering how close this figure is to candy sales in 2016, a perfectly nationally legal product. On paper, this business has great potential – in practice, time will tell.
For the investor not adverse to taking risks, now just might be the best time to invest in cannabis stocks.
For financial daredevils who are in this race for the long-haul, there is a lot of potential in the marijuana stocks market. This isn’t a get-rich-quick scheme – there are just too many unknowns when it comes to predicting how a fully legal marijuana market would perform. There’s no way to tell if Canadian companies will be as profitable as anticipated or if the United States will back marijuana use on a more national level – both critical factors in how these companies will perform. If one has the stomach to ride it out, the potential is undeniable.
There is more than one way to take advantage of this market’s potential; aside from marijuana growers, there are suppliers and collaborators in the marijuana stocks sector to consider.
If an investor wants to dip a toe into the market, it is worth considering companies like Scotts Miracle-Gro (NYSE:SMG) – the current go-to supplier for marijuana growers and traded on a respectable exchange. Additionally, alcohol companies seeking to create cannabis-infused products may send some of the market growth to the investors. Constellation Brands (NYSE: STZ), for example, bought a 9.9% stake in the largely successful Canadian company Canopy Growth and could stand to benefit from changes in legality in the near future.
An investment in small-cap OrganiGram Holdings (NASDAQOTH:OGRMF) may also feel like a safer marijuana stock bet for new investors. Though the company adjusted to bought-deal offerings, the business’ costs are lower than most other companies in the industry and management chose to consider higher-margin products (oils over dried) a priority.
Is now the best time to invest in marijuana stocks? The answer could be, “Yes” depending on which factors, country, risk-level, future legalities, are most motivational to any individual investor.
It may be too close to call for some investors and, yet, with change in the wind, the itch to jump into the industry is understandable. Whether an investor chooses to wait it out, invest in a business collaborator, or buy up stocks from established suppliers, the answers are just around the corner for how well the industry will perform in the coming years.