Cannabis stocks have dominated the financial headlines this year. Companies like Tilray and Canopy Growth have become buzzwords in investing circles and among Robinhood traders.
Stocks in marijuana companies are posting cryptocurrency-like returns. The question is, are pot stocks in a bubble, or are there serious profits to be made from growth in the marijuana sector?
One of the biggest concerns many investors have revolves around legality. After all, the U.S. federal government still lists marijuana as a schedule 1 controlled substance. That places it on the same enforcement level as heroin.
It also makes banking very hard for U.S.-based marijuana companies. Most can only take orders in cash due to federal banking restrictions on schedule 1 substances.
The $146 Billion Global Legalization Movement
But times are changing quickly in the U.S. According to a Gallup poll last year, 64 percent of American’s support legalizing marijuana for recreational use.
As of right now, recreational marijuana is legal in nine states. Medicinal use is legal in 31 of the 50 states. What’s more, seven more states will be considering at least 36 separate cannabis reform measures on the November ballot.
State legislatures, strapped for cash, have plenty of reason to push for acceptance of these ballot measures. For instance, Colorado collected more than $247 million in pot taxes last year, and has already banked nearly $177 million so far in 2018.
Nevada has collected $55.53 million in tax revenue from marijuana since it was legalized last year. And California saw marijuana tax revenue rise 22 percent to $43.5 million in the second quarter alone.
And that’s just in the U.S. Globally, marijuana is legal (mostly for medical usage) in more than 32 countries. Canada is set to legalize recreational use this month, news of which helped spark the pot-stock rally earlier this year. The market is growing so quickly that analysts estimate that the global marijuana market could hit $146 billion by 2025.
Wall Street Is Investing Billions In Marijuana Stocks
Easing global perceptions of marijuana usage — and the $200 billion market price tag — have prompted many companies to jump on board. The most recent high-profile U.S. company to dive in was Constellation Brands.
Constellation doled out a whopping $4 billion for a majority stake in Canadian pot company Canopy Growth. Many at the time felt that Constellation overpaid for a piece of a trendy market fad, and its stock dropped. However, in its recent second-quarter earnings report, Constellation said its Canopy investment had already returned $1 billion in gains!
According to Constellation CEO Rob Sands, “Our $4 billion investment in Canopy Growth provides us with a strong foothold in the emerging global cannabis market, which could be one of the most significant growth opportunities of the next decade.”
Those growth opportunities are so significant, big blue-chip names are already scouting out the marijuana stock sector. Companies like Molson Coors Brewing and PepsiCo are searching right now for the next Canopy or Tilray.
And this is just the tip of the iceberg. The U.S. Drug Enforcement Administration recently announced that it placed certain cannabidiol (CBD) drug products, approved by the Food and Drug Administration, in schedule V — the lowest ranking for controlled substances. This designation opens the door to a whole host of legal medical usage possibilities for marijuana companies.
CBD, most commonly used in oils, is a naturally occurring part of marijuana with none of the intoxicating effects commonly associated with pot usage. Medical uses for CBD include treatments for epilepsy, glaucoma, multiple sclerosis pain management and a plethora of other non-opioid-based pain management.
The Bottom Line
The marijuana sector has taken a long and bumpy road to get to this point, but the legalization tide now appears unstoppable. The question isn’t should you invest in the growth of marijuana stocks, but where? While both Tilray and Canopy Growth are fine investment choices for the long haul, both stocks have already seen their major paydays come and go.
Banyan Hill senior analyst Matt Badiali has identified his #1 stock pick for the legalized marijuana market. He reveals everything you need to know about this stock during his recent Marijuana Investment Symposium which you can watch absolutely free here.