Marijuana Legalization: How Investors Can Profit!

To get our overview of the marijuana boom and a rundown of the top marijuana stocks, go to Fool.com/MJ

In 2018, global cannabis sales reached $12.2 billion and in 2019, sales should soar to $16.9 billion. Some analysts estimate that annual marijuana sales could eventually reach $166 billion.

While sales likely won’t approach that figure in the next ten years, it’s still clear this opportunity is huge — and that has investors excited.

Marijuana is legal for medical use in more than 40 countries and for recreational use in Canada and Uruguay. In the U.S., 33 states have legalized medical use, and 10 states plus D.C. allow recreational use.

But on a federal level, marijuana remains illegal in the U.S. and is classified by the Drug Enforcement Administration as a Schedule 1 substance.

Future sales growth will be driven by new markets opening, new products, pot companies scaling, and the growth of the U.S. hemp market, which has seen explosive popularity since President Trump signed the U.S. Farm Bill, legalizing hemp products like CBD.

Now that we’ve gotten a lay of the land, let’s discuss how investors find pot stocks that will become multibaggers over time! Let’s start by looking at two different ways to invest in cannabis.

First, is the Pure Play approach, in which you invest in a company directly involved in the marijuana or hemp industries.

The biggest marijuana producers, all based in Canada, are Canopy Growth, Aurora Cannabis, Cronos Group, and Tilray. But they’re not the only pure way to play the market.

Charlotte’s Web sells CBD oil, which doesn’t elicit the “high” effect marijuana is known for. And MedMen operates North American marijuana dispensaries, and its seven California facilities make more in sales per square foot than Apple or Tiffany.

For investors interested in profiting from pot ancillary products, KushCo generates all its revenue from the cannabis industry by selling marijuana packaging solutions.

When you’re analyzing stocks in the cannabis space, look for a couple things in particular:

1. Profitability: Few marijuana stocks are profitable yet. Try to determine how quickly it will become profitable and how it’s funding operations in the meantime.
2. Stock dilution: Pot companies haven’t had traditional access to capital in the past, so many depended on financing through issuing shares, which resulted in diluting the available stock. Look at the shares outstanding and the company’s share issuance history.

Specifically, for marijuana producers, there are two key metrics to know.

1. Peak production capacity: Estimate in kilograms of how much cannabis can be grown under ideal conditions.
2. Cost of sales per gram: The less it costs to produce, the better off a producer will be when supply exceeds demand.

The second way to invest in marijuana stocks is by looking at established companies that have ventured into cannabis either directly, or indirectly. This strategy exposes investors to cannabis’ upside, while protecting returns from the risk that sustainable growth doesn’t pan out.

For example, Corona maker Constellation Brands invested $4 billion into Canopy. Molson Coors Brewing and Anheuser-Busch InBev are also exploring CBD-infused beverage ventures. Cigarette maker Altria bought a 45% stake in Cronos Group. And the e-commerce platform company, Shopify, also enjoys growth from online cannabis sales arrangements with governments and pot companies.

These companies already have rock-solid core businesses, but could enjoy a big boost from the marijuana industry.

When analyzing cannabis stocks, consider the usual core metrics you’d look at for any stock, including revenue growth, net debt, and earnings history. Next, you’ll want to get a feel for how much the company stands to gain or lose from its foray into pot.

Compare its revenue from existing operations and make sure you understand just how big its bet is on the marijuana market.

Are you ready to invest in pot stocks? If you meet these criteria, cannabis might deserve a spot in your portfolio.

First, make sure you don’t need the money for at least five years. Cannabis is a fledgling industry that might not pay off. You need time for your investment to generate a solid rate of return coupled with patience to bear any dips or prolonged weakness.

Second, own other investments. Investing in cannabis is a great supplement to an already diversified portfolio, but it shouldn’t be the only industry you’re investing in.

Finally, know the market and its risks. Only buy cannabis companies you understand.

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28 Comments

  1. Tobin FROST on September 19, 2020 at 11:52 pm

    Sean William of Motley Fool💩



  2. Shane Lamell on September 19, 2020 at 11:52 pm

    Thanks for sharing and have a nice day.



  3. im trying to break out the matrix on September 19, 2020 at 11:53 pm

    Cron.. 👍



  4. RKS on September 19, 2020 at 11:58 pm

    Plus Products (plus) (PLPRF) is the #1 edibles brand in California – takeover candidate



  5. CK Del on September 19, 2020 at 11:58 pm

    ETF HMMJ.TO



  6. Pamela Hannibal on September 20, 2020 at 12:01 am

    I lost Eldest to this plant, she is slow, lazy and very disrespectful.It happens let’s thank death presidents



  7. Sean Concannon on September 20, 2020 at 12:02 am

    WLDCF



  8. Lorenz Müller on September 20, 2020 at 12:04 am

    I’d just go with Aurora Cannabis and Canopy because they are the two big pure plays.



  9. Joelito on September 20, 2020 at 12:08 am

    Invest in the Swiss cannabis industry. Own your own CBD plant and earn passive income.

    Register here for free and learn more about CANNERALD.

    https://cannergrow.com/r/IPRRDZ



  10. Steve Young on September 20, 2020 at 12:15 am

    They won’t when you can buy and Oz on the streets for 60.



  11. Tetsu de Rothchild on September 20, 2020 at 12:20 am

    https://edition.cnn.com/2019/09/10/health/vaping-outbreak-2019-explainer/index.html
    concentrated smoke like weed. it does not allow the lungs to heal. vaping dabbing and even regular ital smoking destroys ur lungs. only recently did folks start doing this all day long everyday. years from now like sunny delight the drink in England results will show what im saying.
    https://en.wikipedia.org/wiki/SunnyD
    In December 1999, according to a report by BBC News, the negative publicity escalated when a Sunny Delight television commercial showing a snowman turning orange was released, at about the same time as reports of a four year old girl who experienced her skin turning orange – due to the product’s use of beta-Carotene for color – after drinking an estimated 1.5 litres of Sunny Delight a day.
    Ginny pigs a?



  12. Michael Sanders on September 20, 2020 at 12:21 am

    Good job dumbfucks! Sensationalizing something that is not medically approved. 🖕



  13. Mario on September 20, 2020 at 12:22 am

    Buy Cannatrust



  14. Tobin FROST on September 20, 2020 at 12:24 am

    Sean Williams of Motley fools!😂😂😂😂 bash more Canadian LP you fool.



  15. shaz mo on September 20, 2020 at 12:25 am

    Motley Fool rocks



  16. Joh Penson on September 20, 2020 at 12:25 am

    In less than 2 years from now, you will be wishing you invested in Cannabis just as people are regretting not investing in Bitcoin.

    The global size of the legal marijuana market is expected to reach USD 66.3 billion by the end of 2025, according to a new report by Grand View Research, Inc. It is anticipated to expand at a CAGR of 23.9% during the forecast period. Increasing legalization and use of marijuana in medical as well as recreational applications is expected to promote the growth.

    According to Forbes, "An estimated 38.4 million U.S. adults consume cannabis at least once annually, from either a legal or illicit source. 36% of cannabis consumers report using cannabis daily, and 59% use cannabis at least once a week"

    Investing now is the best time . Just like Bitcoin, the industry will grow like wild FIRE. You can always invest in cannabis with trade-firm.com



  17. Karl E on September 20, 2020 at 12:27 am

    Motley Is it smart that I buy call options that expire in 2022 of WEED and ACB instead of buying the stocks? I noticed you said give the sector about 5 years



  18. Jason Lappé on September 20, 2020 at 12:28 am

    Charlotte’s Web and iAnthus ….. Long Hold.



  19. Paresh roy on September 20, 2020 at 12:31 am

    The City Delivery is the best Cannabis Store in Berkeley, CA, USA. We are supplying the best and fresh cannabis products Berkeley, Oakland, Alameda, Emeryville, and Richmond area. No shipping charge, perfect home delivery. All are product price very reliable.
    just visit: https://thecity.delivery



  20. Diego Jimenez on September 20, 2020 at 12:33 am

    Why do all people that criticize weed and deem it bad now want a piece of the pie? Smh don’t touch OUR weed.



  21. AnthonyGL on September 20, 2020 at 12:34 am

    ALEF & ACB & CWEB



  22. Felixx Denolo on September 20, 2020 at 12:35 am

    Also try the weed even if you don’t invest you still got high



  23. a998 on September 20, 2020 at 12:36 am

    Most fiends will grow themselves or buy from neighbours instead of buying overpriced laced corporate haze.



  24. Jonathan Hills on September 20, 2020 at 12:37 am

    I got a legit vendor for weed the guy is so wonderful i have been dealing with him for a while now if you wanna know or believe what am talking about inbox me for more information or meet him on IG as (Kendybrown)



  25. Grow YourOwn on September 20, 2020 at 12:43 am

    Come visit Sarasota Florida and let me present a groundbreaking idea that will revolutionize the cannabis industry. Don’t sell the product sell the method of growing it and the benefits of the attention given to its growth. I can teach anyone how to grow in seven easy steps. You can learn how to do it yourself like a pro in minutes. “Grow YourOwn“   Start reading it for free: http://a.co/0JxoOlz



  26. Napi Soul on September 20, 2020 at 12:45 am

    Thanks!



  27. RB Colbert on September 20, 2020 at 12:46 am

    I bought some shares of ACB today!



  28. Chad Orten on September 20, 2020 at 12:49 am

    Acb!