The time may be right to begin your sojourn into the world of cannabis and its related products and services.
The marijuana industry is made up of companies that either support or are engaged in the research, development, distribution, and sale of medical and recreational marijuana. Cannabis has begun to gain wider acceptance and has been legalized in a growing number of nations, states, and other jurisdictions for recreational, medicinal, and other uses. As you can see from the following data, U.S. legal cannabis market growth has steadily increased from 2014, with sales forecasted in 2025 to be some $29.7 billion.
Let’s first take a dive into how we got here with cannabis before we determine where it is going.
From the earliest industrial uses of hemp to the spread of legalization of marijuana to cannabis investments, the history of the cannabis industry in the United States stretches across hundreds of years. Since its recent decriminalization, the demand for cannabis has grown exponentially. New Frontier Data compiled the following timeliness of use and regulation in the U.S. beginning in the 18th century.
- 1765: George Washington notes in a farm journal that he grew industrial hemp, which was used for making rope and sail canvas.
- 1906: After the continued production of industrial hemp in the US in the 1800s, Congress passed the Pure Food and Drug Act, which affected the availability of medicinal cannabis, aiming to revamp poison laws. The first state to label cannabis as a poison, ironically, was California.
- 1937: The Marijuana Tax Act was passed in the United States, which levied a tax on commercial cannabis, hemp, or marijuana, effectively making all three illegal.
- 1970: Congress passes the Controlled Substance Act, placing cannabis in Schedule I, which made marijuana illegal for both recreational and medical use.
- 1996-2022: California legalizes marijuana for medical use in 1996. By February 2022, 37 states, four territories, and the District of Columbia allow marijuana for medical use, while 18 states, two territories, and the District of Columbia allow marijuana for non-medical use, according to NCSL.org.
The marijuana industry can be divided into three general categories. It begins with growers and retailers who cultivate and package the product and then sell it to the consumer. The second broad category is that of biotechnology companies that develop and sell cannabis-based pharmaceutical products. Lastly, you have a myriad of ancillary businesses that provide products and services to the industry without involvement in the plant itself.
As you are aware, cannabis can be used for two general purposes, medical and recreational. Probably the most notable matter is the geographic availability of marijuana for use as either medical or recreational. The U.S. is not alone in the industry, as nations across the globe pursue cannabis in its recreational form. While it is currently illegal at the federal level, our neighbor to the north, Canada, has legalized the plant nationwide.
Some look to Canada as perhaps the national model, where currently there is an oversupply of recreational pot, leading to reduced prices for the product.
The most current initiative took place this April 1st, when the U.S. House of Representatives voted to federally decriminalize marijuana. While this may on the surface appear buoyant for the industry, we’ve seen this movie before. The House also passed a similar measure in 2020, only to see it die in the Senate, where a vote on the matter was not even taken up.
The reasons to invest in the industry are pretty straightforward. As mentioned, projected 2025 sales of almost $30 billion is nothing to cough at.
The fact that in the U.S. alone, 37 states have legalized pot for medical uses and an additional 18 states have done so just so you can get high. Thus, those that are positioned correctly in the industry could stand to reap many multiples of their investment should federal legalization ever happen. However, the nascent market is a risk-on asset class at the moment, and one should carefully consider where to invest their hard earned dollars.
There are several niches within the industry that an investor can do a deeper dive into.
The first is those that grow marijuana. There are a number of publically traded companies that manufacture and sell the final product to the consumer. Such products include things like cannabis flowers, pre-rolls, vapes, edibles, and other related items.
Weed dispensaries are another avenue one can pursue. These are retail store locations that distribute cannabis to the public for personal or medical use. Bio-techs and pharmaceuticals attempt to produce cannabis plants for medical or therapeutical uses. Again, there are a number of publically traded equities that can get you exposure to this segment of the market. Lastly are the related products, like cannabis oils, gummies, skincare, beverages, and beyond. Let’s take a look at a few of the stocks in these categories.
Trulieve Cannabis (OTC: TCNNF)
Trulieve is a cannabis grower and retailer that is focused on the medical market primarily in Florida. It represents over half of all sales in Florida and has been profitable for the last five years. The company plans to acquire Harvest Health & Recreation (OTC: HRVSF) in a deal that will boost its presence in several other states and make it the most profitable multi-state marijuana business in the country.
Green Thumb Industries (OTC: GTBIF)
Green Thumb is a cannabis retailer with stores in 12 states and has 13 manufacturing facilities. It is highly concentrated in its home state of Illinois, and is looking to expand into additional states like New York and New Jersey when they come on board.
Jazz Pharmaceuticals (NASDAQ: JAZZ)
Jazz Pharmaceuticals is an Irish biopharmaceutical firm focused primarily on treatments for sleeping disorders and oncology. Jazz has nine approved drugs across neuroscience and oncology indications. It acquired the cannabis-focused biotech company GW Pharmaceuticals in May 2021. GW’s drug Epidiolex is the first cannabis-based medicine to be approved by the U.S. Food and Drug Administration (FDA).
Innovative Industrial Properties Inc. (NYSE: IIPR)
Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that engages in the acquisition, disposition, development, and management of industrial facilities leased to tenants in the regulated cannabis industry. The company’s portfolio consists of specialized industrial and greenhouse buildings leased to state-licensed cannabis operators across the U.S.
Scotts Miracle-Gro (NYSE: SMG)
This is a brand name that most consumers are familiar with. The fertilizer division of the business brings in roughly half the sales of the company, with their Hawthorne Gardening subsidiary bringing in the other half. This segment of the business is as a leading supplier of hydroponic gardening products to the cannabis industry.
The bottom line here is that if you have risk tolerance and a longer-term time horizon you can allocate a small portion of your overall portfolio to this asset class.
As long as marijuana remains a Schedule 1 drug, policy-related volatility may continue. But it’s important to remember that the industry as a whole has already taken great strides even while operating under federal prohibition.
