This really isn’t your father’s investment market anymore.
Not even close, as alternative investors veer off the well-worn path to pour billions into hazy hallucinogenics, otherwise know as the legal marijuana market.
By and large, the U.S. cannabis market is defined as “markets composed of individuals who legally consume marijuana as allowed by state laws, together with the businesses that constitute the supply chain to serve those consumers,” according to ArcView Group, an investors network firm located in San Francisco.
ArcView releases a regular report on the U.S. legal marijuana market, entitled “State of Legal Marijuana Markets”. In its most recent version (the fourth in the series), ArcView details the burgeoning, yet potentially explosive growth of the nationwide cannabis market, a trend that deserves to be on the radar screen of all alternative market investors.
This from the study:
2015 was another watershed year for the legal cannabis market. National legal sales grew to $5.4 billion up from $4.6 billion in 2014, fueled by explosive growth in adult use market sales, which grew from $351 million in 2014 to $998 million, an increase of 184%. Demand is expected to remain strong in 2016 with legal markets projected to grow to $6.7 billion, a 24% increase over 2015.
By 2020, legal market sales will grow to $21.8 billion, with adult use sales comprising nearly two-thirds of the total market.
Widespread usage of marijuana is imminent, and in a big way. In 2016, 86% of Americans live in a state that allows some degree of legal cannabis use, including CBD-only, medical and full adult use, ArcView says. “The wide exposure of the majority of Americans to evolving cannabis laws has been instrumental in shaping the public’s increasing acceptance of cannabis.”
If all U.S. states were to okay legal pot usage, certainly an uphill climb, even as marijuana laws grow more amenable at a skyrocketing pace, growth would be accelerated. According to ArcView, the nationwide cannabis market would be valued at over $36 billion, if the herbal drug were legal across the country.
New Cannabis Trading Platforms
Some Wall Street veterans are already climbing aboard the cannabis bandwagon.
Two experienced Wall Street hands are rolling out Amercanex Corp., an electronic cannabis-trading platform that handles sales of about 100 to 150 pounds of weed a week. Richard Schaeffer, former chairman of the New York Mercantile Exchange, and by Steve Janic, a long-time Wall Street veteran, are at the helm, and business is already brisk. According to industry figures, Amercanex’s 20,000 seats are going for $20,000 apiece, up from $2,500 when the exchange opened.
The exchange currently has 20,000 seats, which originally sold for $2,500 apiece, but now go for $10,000.
Additionally, in early 2016, Sohum Shah, a 26-year-old University of Arizona college graduate, saw his fledgling Cannabis Commodities Exchange hit the investment market pipeline. While that trading platform operates only in one U.S. state (Colorado one of two U.S. states along with Washington where general marijuana sales are legal), Shah sees it expanding into other U.S. regions.
Recent Performance Tepid – But Upside In ’16?
Of course, with any potential alternative investment, caveats abound, and marijuana stocks, funds, and other vehicles took their lumps in 2015.
According to New Frontier’s Marijuana Stock Index, cannabis stocks lost half their value, as measured in the exchange. Weighed against conventional stocks, pot stocks performed significantly more poorly, down 44% against both the NASDAQ and Standard & Poor’s 500.
But 2016 has proven to be a different story.
As of March 21, 2016, Mentor Capital’s Mentor’s Cannabis Index for Value Investors has gained 22% so far this year 2016.
Analysts credit the U.S. Federal Drug Administration’s recent green-light on GW Pharmaceuticals’ (NASDAQ:GWPH) cannabidiol drug for childhood epilepsy, although indoor cultivation system experts Surna, Inc., (OTCQB:SRNA) has seen huge share price growth and rising sales, too, according to Mentor Capital.
But there is another issue in play, and it’s a political one. Mentor says the political environment is one that favors both pot users and marijuana as a valid and profitable investment vehicle.
“Because legal marijuana sales growth is largely a political reclassification from illegal to legal it is not surprising that there is great interest in the political changes this election cycle will bring within the cannabis operating and investment community,” says Mentor CEO, Chet Billingsley. “Speculations abound from Donald Trump co-opting the youth vote and weeks of air time by backing legalization once he is past the primaries, to President Obama declassifying marijuana off of Schedule 1 as a swansong during his last days. Regardless, the political mode is for greater legalization. That momentum seems to support the observed growth in the legal cannabis market, and the index, at about 400% of the growth of NASDAQ,” Billingsley adds.
Legalizing marijuana has some addition ancillary impact that can help fuel cannabis’ growth – mainly, by taking pot out of the black market and propping it in financial markets.
“Legalizing and regulating marijuana will bring the nation’s largest cash crop under the rule of law, creating jobs and economic opportunities in the formal economy instead of the illicit market,” says DrugPolicy.org, an industry advocacy group that supports legalized marijuana use across the U.S.. “Scarce law enforcement resources that could be better used to protect public safety would be preserved while reducing corrections and court costs. State and local governments would acquire significant new sources of tax revenue from regulating marijuana sales.”
Wall Street insiders agree.
Cannabis can be a “good investment opportunity”, as long as marijuana stocks and funds are mixed into a diverse investment portfolio, and is earmarked for “no more than 10% of the entire portfolio”, explains Jim Fitzpatrick, a board member at Kodiak Capital Group, LLC in Newport Beach, Ca.
“Green Gold” In Nascent Growth Stages
As an alternative investment vehicle, marijuana is just getting started, and that incubation period is worth noting.
Given that the vast majority of marijuana companies trade in the over-the-counter markets – which, expert say, are historically under-regulated and overly-risk sensitive – early investors would do well to stick to the handful of publicly-traded firms to break into “green gold” investing. (MarijuanaStocks.com offers a handy list of cannabis investments here.)
Plus, opportunities to invest in cannabis-related funds and ETFs are scant, although expect some to sprout up as marijuana continues to be legalized in more U.S. states.
Past all that, the key for long-term growth is clear – have enough states legalize the drug and force federal legalization soon after, which would bust the pot market wide open. Some analysts think that could happen sooner than you think.
A new study by Ackrell Capital predicts Uncle Sam will legalize cannabis by 2020, thus ushering in a huge new era of growth where the domestic marijuana market would be valued at $100 billion by 2029.
“We believe that it is a question of when – not if – the federal prohibition on cannabis will end,” Ackrell noted in its study.
Until then, do your research and proceed cautiously into what Ackrell calls the “Green Gold Rush.” No doubt, opportunity is abundant in the cannabis market, but it’s a market that’s going to need some seasoning first.