The Future of Cannabis!

Cannabis sales in the U.S. are expected to exceed $33 million in 2022 and reach $52 billion by the end of 2026, according to industry analysis. With market uncertainty lingering, some investors around the world are getting discouraged due to recurring losses in almost all sectors. However, investors with a long-term perspective see this situation as a great investment opportunity. 

Among other fast-growing industries, including healthcare, technology, finance and more, cannabis is one industry with great potential for growth. The sector is growing like a weed as cannabis has been legalized in an increasing number of nations and states for recreational and medicinal use. 

This article takes a deep dive into the industry fundamentals, ongoing trends, risks associated with investing in cannabis stocks, and some of the best cannabis stocks to invest in for high growth potential. 

Cannabis Industry Trends and Facts 

To start with, there are 2 uses of cannabis, one is the medicinal use and the other recreational.  

Medical cannabis patients use cannabis to treat medical conditions, and Recreational cannabis users purchase marijuana purely for fun and must be 18 or older and live in a jurisdiction where recreational use of the plant is legal. 

In the US, cannabis remains illegal at the federal level. However, a growing number of states have legalized medical and/or recreational cannabis. The rapid growth of the U.S. hemp market is reflected in the impressive growth of U.S.-based hemp companies, while marijuana companies in Canada — where the plant is already fully legal nationwide — are expanding more slowly. Canada is one of the global legal markets where supply outstrips demand, driving cannabis prices down. 

Most U.S. financial institutions shy away from offering financing to cannabis companies because marijuana is still federally illegal, meaning lenders who provide the loans could face possible prosecution. 

There are 3 categories of the marijuana industry: 

•  Marijuana growers and sellers who grow and package cannabis products. 

• Biotechnology companies that develop and sell cannabis-based pharmaceutical drugs. 

• Marijuana businesses that provide products and services to cannabis companies. 

As of the fourth quarter of last year, $8.5 billion worth of Mergers and Acquisitions deals had been completed in the sector, significantly more than the $3 billion worth of deals in 2020. This suggests that institutional investors have growing confidence in the future of the industry. 

The Risks of Investing in Cannabis Stocks 

Before investing in cannabis stocks, investors need to clearly understand the risks involved. 

• Legal Risks: The possession and sale of marijuana is against federal law in the US. While only four states have maintained a complete legal ban on cannabis, 46 other states have enacted a patchwork of different legalization regimes governing pot. 

• OTC Risks: Many cannabis stocks trade in over-the-counter (OTC) markets, which means they don’t have to file regular financial statements or maintain minimum market capitalization levels. This means that the financials of OTC stocks can be opaque and have low liquidity, making them difficult to trade.

• Financial risks: Because of the federal ban, there are strict restrictions on banks that engage in cannabis-related business. This makes it difficult for some American marijuana businesses to access key financial services. 

• Profitability risks: Some of the below mentioned cannabis companies have not reached profitability and are heavily indebted, meaning they could face the prospect of running out of cash. 

The Best Cannabis Stocks of 2022 

• Cresco Labs Inc. 

It is an Illinois-based company that grows, manufactures and distributes hemp products. The company operates in 10 states, including more than 70 manufacturing facilities and distribution locations. 

Cresco is the leading wholesaler of branded cannabis products in the US. The company is growing rapidly through acquisitions and the opening of new retail locations. Cresco’s expected acquisition of Columbia Care will make it the largest multistate carrier by revenue. After the transaction closes, Cresco will operate in 18 US markets, including 12 states with annual cannabis sales of more than $1 billion. 

• Aurora Cannabis. 

Aurora Cannabis is a Canadian company specializing in the production, distribution and sale of medical cannabis products. The company’s growth strategy focuses on medical cannabis markets worldwide, as well as the US market for hemp-derived CBD and the Canadian recreational market. 

• Green Thumb Industries Inc. 

Chicago-based Green Thumb Industries is one of America’s largest multi-state cannabis operators. It owns 77 retail cannabis stores in 15 states across the US and operates 17 manufacturing facilities. Green Thumb owns licenses for roughly twice as many retail locations. 

It also continues to grow sales and profits and maintains a strong balance sheet despite macroeconomic headwinds. The company has been profitable since 2020. Green Thumb should have great long-term growth potential as the US cannabis market expands.

• SNDL Inc. 

SNDL Inc. is engaged in the production, distribution and sale of cannabis products in Canada. The company operates through the Cannabis Operations and Retail Operations segments. Grows, distributes and sells cannabis for adult markets; and the private sale of recreational cannabis through company-owned and franchised retail cannabis stores.

• Trulieve Cannabis Corp. 

Trulieve Cannabis Corp. was founded in 1940 and is based in Quincy, Florida. It grows and manufactures its own products and distributes its products to Trulieve branded stores (dispensaries) in Florida as well as through home delivery. 

Bottom Line 

The marijuana industry consists of companies that either support or engage in the research, development, distribution, and sale of medical and recreational marijuana. 

The COVID-19 pandemic has affected almost every part of the global economy, including the cannabis industry. Cannabis dispensaries have been designated essential businesses in many US states.  

Cannabis sales surged in some states in the first few months after the coronavirus outbreak, thanks in part to more time spent at home and heightened anxiety. 

This benefited marijuana growers and retailers, as well as ancillary providers selling gardening supplies and other products to these companies. 

Thanks for reading and stay tuned for more!