Investing in cannabis has gained a lot of traction in recent years, with the legalisation of marijuana for medical and recreational use in various countries and states. This industry has two main sectors: medical and recreational. Each sector has its own regulations and growth potential. There are also various types of companies, including cultivators, retailers, ancillary service providers and biotech firms that specialise in cannabis-based pharmaceuticals.
Have you thought about adding cannabis to your portfolio? Keep reading to find out about this growing industry and ways you can invest in it.
The cannabis industry
Cannabis has been used medicinally and recreationally for thousands of years. However, many countries banned the drug in the first half of the 20th century. More recently, countries in Europe and numerous US states have legalised medical marijuana, and some have even legalised recreational use. The legalisation of cannabis has opened the door for investment opportunities.
According to Fortune Business Insights, the value of the global cannabis market in 2022 was an estimated $43.72 billion, and it is projected to grow to $444.34 billion by 2030. The research reported that North America is the largest cannabis market, and Europe is the second-largest market for the use of medical cannabis.
How to invest in cannabis
Investing in the marijuana industry can be done through several avenues. Here's a breakdown of some common ways to get started:
Marijuana stocks
One of the most direct methods of investing in marijuana is through stocks. Many companies in the cannabis industry are publicly traded on stock exchanges. These include growers, retailers and companies involved in product development and medical research. However, it's important to conduct thorough research and due diligence on these companies, as the industry is still young and can be volatile.
Cannabis mutual funds
Mutual funds focused on the cannabis industry provide a managed investment approach, offering exposure to a portfolio of marijuana-related stocks. These funds can be suitable for investors seeking professional management and diversification.
Ancillary services and products stocks
Investing in the marijuana industry doesn't mean you have to directly invest in plant-touching companies. Many businesses provide ancillary services and products, such as hydroponic equipment, lighting systems and security. These companies can be a safer bet as they are not subject to the same level of regulatory scrutiny as those handling the plant directly.
Types of cannabis stocks
When investing in cannabis stocks, it is important to understand the two broad markets within the industry: medical cannabis and recreational cannabis. Companies in the medical market are involved in the research and development of cannabis products to treat certain health conditions. On the other hand, companies in the recreational cannabis market focus on products for personal enjoyment.
In the cannabis market as a whole, there are three main categories of companies related to different parts of the industry:
- Cannabis growers: Companies that cultivate and grow marijuana (e.g., Tilray, Sundial Growers).
- Cannabis-focused biotechs: Companies that make cannabis-derived prescription drugs (e.g., Jazz Pharmaceuticals, Cronos Group).
- Ancillary service and product providers: Companies that provide products and services to others in the industry, including lighting systems, packaging, professional services, accessories, technology, security and more (e.g., Scotts Miracle-Gro, GrowGeneration).
Examples of cannabis stocks
If you’re interested in investing in cannabis stocks, here are five companies you can consider:
- Canopy Growth Corporation: As the largest cannabis company in the world, Canopy Growth has established itself as a front-runner in the industry. Based in Canada, it has a strong presence in both the medical and recreational cannabis markets. Canopy Growth is known for its diverse portfolio of brands, including Tweed, Spectrum Therapeutics and Tokyo Smoke, among others.
- Aurora Cannabis Inc.: Known for its state-of-the-art production facilities and a vast array of cannabis products, Aurora Cannabis has quickly become one of the leading players in the industry. Its strategic partnerships and commitment to research and development are key factors in their success.
- Cronos Group Inc.: Cronos Group is a leading cannabis company based in Canada. It operates globally, with a strong presence in the medical marijuana market. Cronos Group focusses on cultivating, manufacturing and distributing cannabis products, including oils, concentrates and vaporisers. The company has established strategic partnerships, enabling it to expand its reach and explore innovative research and development initiatives.
- Jazz Pharmaceuticals: Jazz Pharmaceuticals is a global biopharmaceutical company that operates in multiple therapeutic areas, including sleep disorders, hematology-oncology and neuroscience. While not solely focused on cannabis, Jazz Pharmaceuticals has made significant strides in the medical marijuana field.
- Tilray Inc.: Operating in over 20 countries, Tilray has emerged as a major player in the cannabis market. With a focus on cultivation and distribution, this company offers investors an opportunity to tap into the rapidly expanding global cannabis market. On top of cannabis products, Tilray also owns several craft beer brands, including SweetWater Brewery, Shock Top and Montauk Brewing Company.
Risks of investing in cannabis
While the cannabis industry has the potential to grow, especially as more countries legalise it on some level, there are many risks involved. Some risk factors to consider are:
- Legalisation and decriminalization: The political landscape regarding marijuana is constantly evolving. While some countries and states have legalised or decriminalized marijuana for medical or recreational use, others maintain strict prohibitions. Changes in political leadership or public sentiment can impact the legal status of marijuana, potentially affecting investment opportunities.
- Regulatory compliance: The marijuana industry is often subject to stringent regulations related to cultivation, manufacturing, distribution, and retail. Compliance with these regulations can be costly and time-consuming. Changes in regulatory requirements or the introduction of new regulations can impact the profitability and operations of marijuana businesses.
- Relatively new industry: Since the cannabis industry has not been around for that long, there are unique risks that may arise. Companies in this space are young and have not yet stood the test of time.
- Volatility: Cannabis stocks are known to be volatile. Stocks in this sector can be highly sensitive to new developments in the industry, such as loosened legal restrictions or analysts’ opinions.
- Licensing and permitting: Obtaining the necessary licenses and permits to operate a marijuana business can be challenging due to the strict. Issues related to licensing delays, limited supply, or changes in licensing requirements can negatively impact investment returns.
Back to blog