Why are marijuana stocks going up?
Why are marijuana stocks going up? The marijuana industry has seen remarkable growth in recent years, driven by the gradual legalization of cannabis for medical and recreational use across various regions. The industry is expected to expand at a compound annual growth rate (CAGR) of 34% through 2030, creating significant opportunities for investors. As the U.S. Drug Enforcement Administration (DEA) moves to reclassify marijuana from a Schedule 1 controlled substance to Schedule 3, this could open the doors for even more growth, particularly in the United States.
Investing in Marijuana Stocks: Opportunities and Risks
The marijuana industry has seen remarkable growth in recent years, driven by the gradual legalization of cannabis for medical and recreational use across various regions. The industry is expected to expand at a compound annual growth rate (CAGR) of 34% through 2030, creating significant opportunities for investors. As the U.S. Drug Enforcement Administration (DEA) moves to reclassify marijuana from a Schedule 1 controlled substance to Schedule 3, this could open the doors for even more growth, particularly in the United States.
Best Marijuana Stocks for 2024
- Green Thumb Industries (OTC: GTBIF): Green Thumb Industries is one of the largest cannabis companies in the U.S., operating 96 retail dispensaries and 20 manufacturing facilities across 14 states. The company has been profitable since 2020 and continues to grow its revenue despite challenges in the macroeconomic environment. If federal cannabis restrictions are lifted, Green Thumb’s stock could see a significant boost as it becomes eligible for listing on major U.S. exchanges.
- Trulieve Cannabis (OTC: TCNNF): Trulieve Cannabis is the largest cannabis company in the U.S., with over 200 retail stores across eight states. The company holds dominant market positions in Florida, Arizona, and Pennsylvania. Trulieve’s stock, like Green Thumb’s, is traded on OTC markets but could see substantial growth if federal marijuana reforms are implemented.
- Innovative Industrial Properties (NYSE: IIPR): Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that provides much-needed capital to U.S. cannabis operators by purchasing their properties and leasing them back. This sale-leaseback model has enabled IIP to grow rapidly, now owning over 100 properties in 19 states. Although federal reforms could introduce more competition, they could also expand the market, benefiting IIP.
- Quest Diagnostics (NYSE: DGX): Quest Diagnostics is a surprising but logical inclusion in the marijuana stock list. As a leading provider of laboratory testing services, Quest benefits from the increasing demand for drug testing in workplaces, driven by the widespread legalization of marijuana. For risk-averse investors, Quest offers a way to profit from the cannabis industry without directly investing in marijuana stocks.
- Turning Point Brands (NYSE: TPB): Turning Point Brands is a leader in smoking accessories and oral tobacco products. The company sees significant growth potential with the legalization of cannabis in the U.S., estimating an addressable market of around $200 million in the alternative market for headshops and cannabis dispensaries.
Marijuana Industry Segments
The marijuana industry is divided into three main segments:
- Marijuana Growers and Retailers: These companies cultivate, package, and sell cannabis products directly to consumers.
- Biotechnology Companies: These companies develop and market cannabis-based pharmaceutical drugs.
- Ancillary Marijuana Businesses: These companies provide products and services to cannabis companies without directly dealing with the plant.
Market Dynamics
The legalization of marijuana has been more widespread for medical use than for recreational use. In the U.S., marijuana remains illegal at the federal level, but many states have legalized it for either medical or recreational use. The U.S. cannabis market’s rapid growth contrasts with the slower expansion in Canada, where marijuana is fully legal nationwide. In Canada, an oversupply has led to falling prices, while the U.S. market continues to thrive.
The COVID-19 pandemic had a mixed impact on the marijuana industry. While cannabis dispensaries were deemed essential businesses in some states, leading to a sales boom, companies in tourist-heavy areas like Las Vegas saw a decline in customer traffic. Additionally, the pandemic caused delays in new patient starts and logistical challenges for biotech companies. While the worst effects of the pandemic have subsided, some lingering impacts remain.
Investing Considerations
Investing in marijuana stocks carries significant risks. The industry is still in its early stages, making it highly volatile. Conservative investors may prefer to avoid marijuana stocks due to their high-risk nature. However, for aggressive investors with a high tolerance for risk, marijuana stocks offer potentially high rewards. The market opportunities are enormous, particularly as more U.S. states legalize cannabis.
Conclusion
The marijuana industry presents both opportunities and risks for investors. With an expected growth rate of 34% annually through 2030 and the possibility of federal reforms in the U.S., the industry could see significant expansion. However, the nascent nature of the industry means that careful consideration and research are essential before investing in marijuana stocks.
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