The cannabis industry is quickly growing (no pun intended) in America. With Illinois recently becoming the latest state to legalize recreational cannabis consumption, Canada ending prohibition on a national level, and the cannabinoid CBD showing up seemingly everywhere, the state of legalized cannabis in North America has never been better.
But does that mean it’s a smart investment?
Before we get into that, here’s a brief but necessary disclaimer: nothing in this article is intended as actual investment advice. Real investment advice needs to be personalized, and if that’s what you’re looking for then we highly recommend making an appointment with a qualified financial expert. In this article, we’re simply going to lay out some information to help you make an informed choice, whatever that choice may be.
Alright, now that we’ve (hopefully) satisfied our legal team, let’s talk cannabis! It probably seems like a no-brainer investment—national legalization within the next few years seems pretty inevitable, the states that have gone rec-legal are reporting billions of dollars in profit, and it’s reported that 78% of adults age 18-34 support legalization. How could this be anything other than one of the hottest stocks available?
That’s a good question, because cannabis-related stocks have not been hot. They generally haven’t even been lukewarm.
So how could something that seemed like such a sure hit turn out to be a dud? And is that all about to change?
Why Cannabis Stocks Haven’t Hit
There are a million reasons why any particular stock fails, but for the cannabis industry the general consensus is that investors’ expectations were overly optimistic… and maybe just a bit ill-informed. No matter how many states have legalized medical or recreational use, the fact remains that cannabis is still illegal on the federal level.
That makes it a riskier venture than most Wall Street types are willing to become involved with.
There are also shortcomings in the states that have legalized recreational consumption, including Canada where it’s legal on the national level. Supply shortages and other logistical issues have kept the black market alive in these places, another sign potential investors interpret as a red flag.
Change the product in question—would you want to invest in a company that sold cheese sandwiches, but couldn’t keep them in stock? Especially knowing that there were plenty of local dairy farmers who had been successfully meeting the needs of cheese-hungry residents for decades? Right.
The FDA is another potential piece of the puzzle here—while CBD oils are arguably more popular now than fidget spinners were in 2017, the FDA still hasn’t come out and endorsed CBD as having any legitimate medical benefit. Without that claim to legitimacy, it’s possible today’s CBD craze is just another fad… and anyone who invested in fidget spinners in 2017 will know just how dangerous it is to invest in a fad.
Are Things About to Change?
There are a ton of reasons cannabis stocks have failed. But the fact is that none of them matter if things are about to change going forward. As mentioned above, the push for legalization in the United States shows no signs of slowing down, and if federal prohibition ends the natural assumption is that investors’ biggest hurdle will be cleared and these stocks will suddenly demonstrate the value they’re expected to have.
But that’s a very big if. And the truth is that there’s no way to predict the future. Sure, things might seem like they’re trending in this direction, but until they actually happen it’s impossible to say for sure.
And so, investing in cannabis stocks remains a leap of faith. But, like any investment, if you’re willing to risk the capital you stand to reap the reward. And the cannabis industry offers a risk/reward ratio unlike anything we’ve seen in the past 20 years.
If you’re considering the investment, our best advice is that you first sit down with a qualified financial advisor to assess exactly what you can afford to invest, and how it might best be spent.