Despite cannabis legalization, the cannabis industry is still lagging behind in its overall growth opportunities. Despite the excitement around recreational and medicinal cannabis use, there is still some concern that this industry will be over-saturated by the time 2021 rolls around. We break down the factors that will drive the industry in the coming years, such as how farmers will be able to monetize their land, the ongoing demand for edibles, and the evolution of new technologies.
There are a lot of rumors flying around about what the future holds for cannabis. Some say it will be a billion dollar industry in 2021, others say it will be fully legal, others still think we’ll see more states legalize medical use. And while we may not know exactly what will happen in the next five years, there are a few trends in the industry that are pretty sure to help.
Cannabis has rapidly moved from underground culture to the mainstream. The global cannabis industry is estimated to be worth $9.1 billion in 2020 and is expected to grow at a compound annual growth rate of 26.7% between 2021 and 2028.
Benzinga spoke with Tony Venosa, CMT, senior options strategist at Schaeffer’s Investment Research, to learn more about the latest trends affecting the cannabis industry and cannabis stocks.
The road to legalisation
In recent years, public support for marijuana legalization has increased. An overwhelming majority – 91% of American adults – believe marijuana should be legal for both medical and recreational use (60%) or at least legal for medical use (31%).
This support is also reflected in the legislation. According to Venosa, we are witnessing two important developments. The first is the growing acceptance of medical marijuana legalization in conservative states.
A few weeks ago, Alabama’s governor signed the marijuana legalization bill into law, Venosa said. In Utah, a medical marijuana law was passed in 2018 with the blessing of the Church of Jesus Christ of Latter-day Saints. Utah’s marijuana program could also serve as a model for other conservative states like Idaho and Kansas.
There is also strong support for marijuana legalization at the federal level. Lawmakers will vote this month on the House bill to legalize marijuana. The Marijuana Opportunity, Reinvestment and Relief Act (MORE), authored by U.S. Rep. Jerrold Nadler (D-N.Y.), would take marijuana out of the Controlled Substances Act and allow the federal government to tax it.
Amazon and Cannabis
Amazon recently announced that it would no longer disqualify employees for marijuana use and would not include it in its comprehensive drug testing program. Amazon also recently supported cannabis legislation.
Venoza said he has no doubt that the decision will have significant implications for the cannabis industry, especially given Amazon’s $1.5 trillion market capitalization.
That could prompt other companies in the country to take similar steps, Venoza said of Amazon’s recent internal policies. In addition, Amazon said it would support the MORE Act of 2021 and is urging other employers to do the same.
The recent merger of Tilray and Afria has created the largest cannabis company in the world. As the sector develops and legal hurdles are overcome, Venoza believes there will be more mergers and acquisitions, especially of upstream companies that want or need to become active in this sector. These include companies such as Altria (MO), which has a significant stake in Cronos Group (CRON), and alcohol producer Constellation Brands (STZ), which has a stake in Canopy Growth (CGC).
Investing in cannabis companies
Recent milestones and rapid growth in the cannabis industry continue to attract the attention of investors. It’s easy to get excited about this sector, but it’s still crucial to be selective about the stocks you invest in.
When it comes to identifying companies with high potential, Mr. Venosa stays true to his company’s strategy.
We offer short-term options to subscribers that can benefit from the rise or fall of stocks depending on their strategy, he said. One of the most important factors for the listed companies we follow is their liquidity on the stock markets. Factors such as average daily trading volume, market capitalization, open interest and bid-ask spreads help us determine which companies are poised for success.
We also use technical analysis, fundamental analysis and sentiment analysis to help us make decisions and specific trading recommendations.