Investors are hearing more and more about the exponential growth of the legal cannabis industry. For those thinking they've missed out, don't fret. Data confirm the marijuana sector's growth is still in the early innings.Data from the Marijuana Business Factbook indicate U.S. medical and recreational cannabis sales should eclipse $12 billion this year, a 35 percent rise from last year, before ascending to $30 billion (or more) in 2023. Simply put, there aren't many industries out there where revenue is going to jump 2.5x in five years in just one country, but cannabis is one.
Courtesy: Marijuana Business Daily
Marijuana's growth trajectory in the U.S. will be cemented as more states embrace legalization. For now, just 10 states and Washington, D.C. have legalized cannabis for both medicinal and recreational purposes. However, there are 11 states where marijuana is fully illegal. Additionally, some “mixed use” states that have budget shortfalls, such as Illinois and New Jersey, could turn to full legalization as way of bolstering state coffers.
States may soon be faced with another issue on the legalization front. Sales medical marijuana are expected to dip considerably in the coming years, meaning that states looking to cannabis as a revenue generator may have to embrace legalization at the recreational level. That presents investors with significant opportunities for growth
Getting In On The Cannabis Action
For many investors, traditional cannabis-related investment access has been limited to stocks and exchange traded funds (ETFs). Those universes are growing as more Canadian marijuana companies look to list on major U.S. exchanges and more fund issuers bring cannabis ETFs to market. In July alone, three cannabis ETFs
debuted in New York, bringing the number of US-listed weed ETFs to five.Those are practical options, but some investors may prefer other avenues to cannabis growth. With the recent lifting of its Schedule 1 drug status, hemp is not only legal, but packed with potential
for investors. Hemp has myriad industrial applications, including as an ingredient in concrete (known as hempcrete), fabric and packaging materials.Before marijuana was outlawed in the U.S., hemp was one of the most widely grown crops and American farmers are again rushing to meet increased demand.“Biggest opportunity that no one knows exactly what to do with is hemp,” said The Ivy Investor's Courtney Richardson in an interview with The Grio
. “It seems that people are excited and get the investment opportunity since the passage of the Farm Bill in December 2018 but there’s a bit of trepidation because of this country’s history of cannabis prohibition — hemp and marijuana.”
Another, often overlooked entry to cannabis investing is via ancillary companies. When many investors think of the marijuana investing space, they think of concentrates and oils manufacturers, edibles makers and operators of dispensaries. However, those businesses make up a mere sliver of the broader cannabis landscape.Ancillary cannabis companies include a wide array of enterprises, such as makers of vapor devices, technology companies, financial services providers, legal services and real estate.An example of a publicly traded ancillary would be Innovative Industrial Properties (IIPR)
, a cannabis real estate investment trust (REIT) whose shares have surged 137 percent this year. IIPR's business model is simple. Because marijuana remains illegal at the federal level and banks are federally regulated, many legitimate cannabis businesses cannot access traditional financial services.IIPR fills some of that void by buying marijuana properties from producers and leasing the real estate back to them, enabling those companies to access much-needed cash in the process
.Another, probably more familiar name in the cannabis ancillary business is The Brink's Co. (BCO)
. Yes, the same Brinks that provides security services for banks. Due to the cash-intense nature of the marijuana business, the industry is fertile territory for Brinks, shares of which are up 43.54 percent this year. Bottom line: there are a lot of ways for investors to tap into cannabis growth that do not involve direct production of or participation in the vice itself.
Related: Industrial Hemp: Discussing a Risky, But Potentially Lucrative Niche With Clients