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One of the hottest segments of the stock market at the moment is the marijuana sector.
There are whole newsletters devoted to it, telling you how to get rich as the legalization of pot spreads across the United States.
But many of the stocks touted in those newsletters are, to be polite, trash. Buying many of those stocks mentioned will only lead to one’s portfolio to, well, going to pot.
These type of stocks make the entire cannabis sector look likes it’s a scam. But it’s not. The marijuana industry is one that is growing rapidly and should not be ignored.
Cannabis in the U.S.
The results of the November elections in the United States brought the number of states allowing legalized pot in some form to 28, with 23 states now permitting the use of medical marijuana.
Even more importantly is the fact that now nearly 68 million Americans – about 21% of the population – live somewhere where it is legal to use marijuana for recreational use.
This includes the state of California where only medical marijuana was legal previously. That alone has tripled the potential size of the legal marijuana market.
For the marijuana industry, this election was a watershed moment. It called into question the U.S. federal-level ban on the use of pot that has been in place for over a century.
President Obama said the federal ban looked increasingly “not tenable” with the growing legalization of pot at the state level.
Expect more states to give the okay to pot. The door is wide open since, unusually, the federal Controlled Substances Act does not preempt state laws governing prohibited drugs.
Marijuana Industry: Legal Sales at $21 Billion by 2020
The cannabis investor network, ArcView Group, says that legal sales of pot rose about 17.4% in 2015 to $5.4 billion. Its projection for sales in 2016 is $6.7 billion.
ArcView foresees legal marijuana sales, by 2020, to hit $21.8 billion. In California alone, ArcView sees sales growing at a 29% annual rate, with sales reaching the $7.6 billion level by the end of the decade.
The ArcView predictions seem reasonable with more and more Americans looking favorably on the legalization of marijuana.
A Gallup poll in October showed that 60% (70% among millennials) of Americans now favor legalization. That is the highest level of support since the question was first asked in 1969, when only 12% favored legalization.
Another forecast – from the investment bank Cowen – also seems achievable.
In its 110 page report titled Ahead of the Curve: The Cannabis Compendium, Cowen predicts that the market for recreational marijuana in the United States could reach $50 billion by 2026. That is nearly nine times the size of today’s legal pot market.
Cowen adds that there could be 17,000 legal marijuana retailers in the U.S. upon full legalization. All thanks to the potential broad pot usage it foresees: “Potential product applications range from recreational, to health and wellness, to therapeutic, to pharmaceutical.”
Cowen’s conclusion was that “a 24 percent, 10 year revenue compound annual growth rate is hard to find in consumer staples, in particular one with a $50-plus billion endpoint.”
Growth Spurt for Marijuana Industry
It does look like the marijuana industry will go through a remarkable growth spurt.
Silicon Valley venture capital billionaire Peter Thiel and his Founders Fund have invested into Privateer Holdings, a Seattle-based private equity fund focused on cannabis.
Privateer Holdings CEO and co-founder, Brendan Kennedy, summed up the future potential of the domestic marijuana market succinctly: “It’s a massive opportunity. It’s the first time anyone in our lifetime is seeing a $40-$50 billion industry transition from illicit to legal.”
That sounds to me like a wonderfully investable opportunity.