The opening of the cannabis market for leisure remind the end of the "dry season" in the U.S. The changes in public opinion and the potential growth of the market makes the cannabis sector an attractive investment, especially in its initial stages.
The cannabis industry has always ignited the imagination of many investors around the world. Aside from the health properties of the miraculous plants, the recreational use of cannabis is rolling a great deal of money. Determining exactly how much money is quite difficult. In early 2014, Colorado was among one of the first states to pass a law approving the retail sale of cannabis for recreational use. Sales reached more than $112 million a month last April, reflecting an average annual growth of 939%.
If that wasn't enough, Colorado state tax revenues and licenses from the cannabis industry have become a significant income source. According to the state tax authority, revenues totaled more than $300 million in 2019 and more than $1.3 billion on a cumulative basis since the legalization in 2014. The total volume of cannabis sales in Colorado since the legalization has totaled a whopping $8.4 billion.
The Effect of The Dry Law on The Alcohol Market
The ban on the use of cannabis for recreational purposes reminds me of the 1920-1933 Prohibition era. The Prohibition era enforced a constitutional ban called The Wartime Prohibition Act. This act put a ban on importation, transportation, production, and sale of any alcoholic beverages throughout the United States. The Prohibition was placed in order to protect the health of each citizen; however, it was incredibly controversial at the time and not every citizen supported this act.
This act caused more than just a divide between U.S. citizens; Americans lost their jobs because of it. It also lost the federal government $11 billion in tax revenue while also costing $300 million to enforce it. The lifting of the ban towards the end of 1933 was one of the reasons for the rise of the economy. To make matters clearer, the federal government's tax revenue in the year following the conclusion of the law (1934) amounted to about $1.35 billion from alcohol-related activity alone, representing half of the federal government's tax revenue that year.
After this act’s repeal, thousands of workers returned to the circle of employment in the American alcohol industry. It doubled the creation of jobs in the American economy. It led to more jobs in the areas of pharmacy, retail, clerical, and agricultural sectors that supply raw materials to the industry.
Currently, only 11 states in the U.S. have full legalization of medical and recreational use of cannabis. The legalization of cannabis in the rest of the U.S. could generate $132 billion in tax revenue by 2025 and create more than a million new jobs in the U.S.
Global Consumer Spending on Cannabis
In 2019, the total cost of legal cannabis sales around the globe was $15 billion - a 36% increase over the previous year, but still less than 10% of the estimated $160 billion in the market. Given the change in attitude towards cannabis, companies operating legally have high growth potential.
The Capital Market Does Not Stand in The Way
It is fair to say that the stock market reflects the economy. According to this index, several public companies are operating in the cannabis field whose shares are traded in various stock exchanges around the world.
The leading company in the field among public companies is undoubtedly G.W. Pharmaceutical (NYSE: GWPH), which operates in medical cannabis and has been traded on the NASDAQ stock exchange since April 2013.
Their market value is more than $4 billion. G.W. has developed a drug called Epidiolex whose ingredients are cannabis-derived that can treat seizures associated with epilepsy. Epidiolex by G.W. is the only cannabis drug so far approved by the U.S. Food and Drug Administration.
G.W. is not the only company seizing medicinal opportunities relating to cannabis. There are a range of therapeutic indications that can be treated with medical cannabis. From neurological, psychiatric, and gastrointestinal diseases, as well as conditions related to the immune system and chronic pain. Venture Capital has been funding this type of activity, which is considered a leading indicator reflecting the hidden potential in the markets. This confirms the high estimates regarding the cannabis market in the future. According to Pitchbook data, 307 venture capital funds invested a total of $2.62 billion in 277 companies related to cannabis in 2019.
Regulations have changed so dramatically and so rapidly that it has led the industry to roll out billions of dollars quickly. The changes in public opinion and the enormous potential of the market makes cannabis an attractive investment in its initial stages.
Liberalization of Regulation
Canada, in October 2018, became the first country among the G-7 to allow the use of cannabis for leisure. Canadian cannabis consumption grew from 54% at the end of 2018 to 63% at of the end of 2019. Cannabis sales in Canada in March 2020, according to the regulatory body Health Canada, totaled $132 million – an increase of 197% compared to the same period in 2019.
Mexico and New Zealand may be the next countries to undergo a process of legalizing cannabis for recreational use. Mexico intends to propose legalization by the end of the year, as determined by the country's Supreme Court, and New Zealand will hold a referendum on cannabis legalization in September 2020. Long-term trends point to the liberalization of cannabis use regulation, but the road there will not be that simple. Despite the potential risks, cannabis can be the right industry to invest in.