Though global demand for cannabis has existed for decades (and arguably even millennia), it was not until recently that the international cannabis market began to become completely legitimized. Ongoing legislative efforts and ballot initiatives in the United States and elsewhere around the world have transformed the industry from a black market operation to one that offers investors incredible opportunities to openly increase their wealth.
Normally, when a “new” market is created, industry producers need to wait a significant amount of time before there exists a sufficient level of demand for their product. The cannabis industry, however, has demonstrated itself to be much different. Because high levels of demand already existed all around the world, industry producers quickly recognized that if anything was lagging behind, it was the availability of the global supply.
Clearly, the cannabis industry is uniquely positioned upon a frontier of tremendous opportunity. In this article, we will discuss the most important things for you to know about the industry as a whole and—whether you plan to ever consume cannabis or not—we will also discuss the many unique opportunities for you to earn a significant return on your investment from cannabis trading.
1. The Difference Between Hemp and Marijuana
Before you consider investing in the cannabis industry, it is important to recognize that the term “cannabis” can actually be used to describe a broad range of different products. Though many of the terms in the industry are often wrongfully used interchangeably, both hemp and marijuana are distinctively different manifestations of the more-inclusive cannabis plant.
The primary difference between hemp and marijuana is that, contrary to hemp, marijuana typically contains relatively high levels of tetrahydrocannabinol (THC). THC is the primary component of the cannabis plant that causes users to feel “high” and, consequently, the way in which these products are regulated and managed are significantly different. In the United States, in order for a cannabis product to be labeled as hemp, it must have a THC content of less than 0.3%. Hemp still typically has some active ingredients—usually referred to as cannabinoids—such as CBD, CBN, and others, but these ingredients do not affect users nearly the same way as THC does.
Generally speaking, governments around the world are much less hesitant to allow the growing of hemp than they are to allow the cultivation of marijuana. Hemp can also be used for an incredibly wide variety of industrial purposes including paper, fibers, fuel, animal feed, and many others. This is especially beneficial because, contrary to marijuana, industrial hemp is actually quite easy to grow. Still, because both products are derived from the same cannabis family of plants, there are still some unresolved complications involved in the legalization process.
2. Dramatic Legal Changes around the World
As cannabis use began to enter the mainstream American public in the early 1900s, various groups—including tobacco, paper, and alcohol lobbyists—began to advocate its prohibition. By 1937, the Marihuana Tax Act began to place federal controls on the plant and, by 1970, the Controlled Substances Act outlawed cannabis altogether.
However, despite the fact that the Federal Government of the United States still considers cannabis to be a “schedule I” substance that is more heavily restricted than opiates and certain amphetamines, multiple states across the nation have effectively begun to allow its use. The first “pro” cannabis piece of legislation was California’s Proposition 215, which was successfully passed in 1996.
In 2012, Colorado and Washington were the first states to legalize cannabis for personal use. Furthermore, as of 2018, a majority of states allow the use of cannabis for medical purposes and several more states (AK, OR, CA, NV, MA, ME, VT, DC) have also decided to permit recreational use as well. Currently, only four states (KS, NE, SD, ID) do not allow at least the use of non-psychoactive cannabis.
Though—despite opposition from the federal government—the United States has effectively positioned itself as one of the leading forces with regards to recreational cannabis legalization, there have been significant efforts made elsewhere around the world as well. Uruguay, South Africa, and Georgia are the first three countries to allow full recreational consumption within their borders. Spain, Italy, and the Netherlands are believed to be on the verge of achieving total legalization as well.
Other countries around the world have begun to decriminalize recreational use, allow for medicinal use, or effectively stop enforcing their laws altogether. Furthermore, one of the most notable efforts that have been made is that, as of October 17th, 2018, Canada will allow the recreational use of cannabis across the entire country. Considering the close relationship that exists between the United States and Canada, Canada’s legalization may inadvertently accelerate the pro-cannabis movement in the United States as a result.
3. The Economic Impact of the Cannabis Industry
Though these figures are often difficult to generate, recent research conducted by Grand View Research suggests that the marijuana market is estimated to be worth more than $146.4 billion by the year 2025. When compared to IMF figures from 2017, this means that the marijuana industry alone would be the 59th largest economy in the world.
Clearly, the marijuana industry has the potential to have a major impact on the global economy and to influence a wide variety of different industries.
- “Cannabis Tourism” is expected to rapidly grow.
- Medical marijuana—which some claim can help treat chronic pain, cancer, various mental health disorders, and other conditions—will likely begin competing with traditional healthcare and effectively drive down costs.
- Marijuana cafes, marijuana clubs, and other recreational venues will likely begin to emerge in Canada, the United States, and elsewhere.
- Once cannabis is fully legal in the United States and Canada, this will likely lead to an increase in international trade (especially in light of the new trade deal).
- The marijuana industry is also believed to have already created more than 200,000 jobs—many of these employees enjoy more than a 15% pay raise each year
- Furthermore, in the United States, hemp—the distinctively non-psychoactive derivative of the cannabis plant—has also begun to enjoy bipartisan support from pro-business and pro-agriculture Republicans and generally pro-cannabis Democrats. The Hemp Farming Act of 2018 intends to remove hemp (cannabis with less than 0.3% THC content) from the list of federally controlled substances, support hemp farmers and researchers with various grants, and also allow hemp farmers to have clearer access to the national banking system.
Even though this act has not yet passed, the hemp industry has already begun to flourish in states such as Colorado and elsewhere and has already surpassed $1 billion in domestic value. Once hemp is fully legalized across the United States, it can be expected to perpetually compete with paper mills, animal feed producers, center wellness treatments centers, and various other industries.
4. The Cannabis Industry is “Going Public”
There is no doubt that the general movement toward the legalization of cannabis has already begun to disrupt a wide variety of different industries. What remains unclear is whether these industries—particularly those involved in the medical community—will continue to resist this seemingly inevitable growth or if they will embrace it and find a way to position themselves as industry innovators.
Until such a decision has effectively been made, it remains clear that cannabis producers will continue to occupy a significant portion of the agricultural start-up market. As is the case with many new businesses, the typical large-scale cannabis operations begin with funding from a few angel investors and then seeks additional private funds once they have been able to demonstrate a potential for growth. However, even though there still remains some legal uncertainty regarding the cannabis market, several cannabis producers have already begun the process of issuing IPOs and going public.
Here are some of the top performing cannabis stocks over the course of the past year (2018):
- Tilray (NASDAQ: TLRY): grew from $25.60 on August 9th to $214.06 on September 19th
- POTN (OTCMKTS: POTN): grew from $0.19 on January 12th to $0.85 on January 26th
- Aurora (OTCMKTS: ACBFF): grew from $4.09 on August 14th to $11.36 on October 15th
- Canopy (NYSE: CGC): grew from $24.62 on August 14th to $54.89 on October 15th
- Cronos (NASDAQ: CRON): grew from $5.65 on August 14th to $13.75 on September 20th
Clearly, the fact that some of these stocks have demonstrated a potential to more than double their value in a matter of weeks (or even days) will continue to attract initially skeptical investors to cannabis trading. The period between mid-August and early October 2018—occurring near the time many outdoor growers were harvesting their crop—was particularly lucrative for the industry as a whole.
However, despite this potential for growth, it is important to recognize that the cannabis industry is exceptionally volatile. For example, the company India Globalization Capital (IGC) experienced more than 1,000% growth between September 14th and October 2nd, but then lost 70% of that rapid growth over the next three days. Though those who held the stock before this period of volatility are indeed still wealthier because of these movements, anyone who entered the market when IGC stock happened to be at its zenith, may be questioning their initial decision.
5. Reasons for Continued Growth
Despite the high levels of volatility that the cannabis industry has clearly begun to demonstrate, one thing continues to remain undeniably clear: even when using conservative projections, the cannabis industry as a whole is still significantly increased in value over time. As capital is gradually shifted from black-market operations to legal, publicly traded firms, the question is no longer whether the industry has what it takes to succeed, but who will ultimately be the most successful.
There are plenty of reasons for outside observers to believe that the cannabis industry will continue its steady rate of growth.
- As the cost of cancer treatments and other medical treatments continue to rise, patients who find relief in the consumption of cannabis will have a significant impact on global demand.
- Changing attitudes, legislation, and the opening of markets will help make it possible for major cannabis firms to access a wider audience.
- Operating on an economy of scale—which is typically made much easier when done through legal avenues—will allow the cost of cannabis to decrease, which will increase accessibility without any damages to profit margins.
- Increased competition will help spur innovation, drive down production costs, and increase the general quality of cannabis producers around the world.
For better or for worse, the days of full cannabis legalization are undeniably on the horizon. This industry presents the capacity to both complement and disrupts a variety of other industries, meaning that its economic impact is something that no investor can justifiably ignore. Between the bipartisan movement towards legalizing hemp, Canada’s dramatic push to become a world leader in cannabis production, countless initiatives occurring across the states, and various other legalization efforts occurring elsewhere in the world, the industry is clearly prepared to establish itself as a permanent economic fixture.
The cannabis industry—which consists of both hemp and marijuana—is volatile because, as we have seen with other industries (think about the “.com” era), all new industries are positioned upon a frontier of initial uncertainty. However, despite the fact that this level of volatility is likely to continue on into the perpetual future, it remains clear that the value the cannabis industry can offer the world is indeed authentic. The future of cannabis is exciting and will likely witness increased competition, innovation, and consolidation of the world’s top firms. Though investing in the industry is something that can certainly not be done without risk, the almost universally recognizable potential for growth that exists there has uniquely attracted the attention of investors all around the globe.