In this article, we will address the topic of investing in the cannabis market, which is becoming increasingly popular worldwide in recent years. Any investor who pays attention to the market and the economic developments of certain sectors cannot fail to spot important profit opportunities by investing in cannabis stocks, which can be very profitable. Not only for companies producing hemp or cannabis-derived products, but also for those who, like us at Harvin, work with this sector or who decide to invest shares in such a profitable market.
The Cannabis Market
But why do people decide to invest in the cannabis merket? First of all, it is good to clarify what it is actually all about before continuing with our analysis. When we speak of cannabis, we mean the industry as a whole, i.e. both that part of the market that includes hemp – sold in Italy with a THC percentage of less than 0.6% and now in most of Europe under 0.2% – and that with high THC levels, which is produced for medical use, but in some states also for recreational purposes. Cannabis is currently legal for recreational and medical purposes in no less than 15 states in America, as well as in the Netherlands, Spain, Uruguay and Canada. In 36 American states, cannabis is legal for medical use, and in more than 30 others worldwide, including Italy. Some countries are currently considering legalising cannabis also for recreational purposes, including Australia, Colombia, Germany, Poland, the United Kingdom, Greece, Israel and Chile.
But how is Cannabis manufactured, sold and consumed?
Mainly Cannabis is consumed through smoking, but it is also sold in the form of oils, tinctures, flowers, creams and hemp edibles that can only be sold with a medical prescription. Edibles in particular have been experiencing an increase in sales in recent years, both in Europe and America. At the top of the list of consumer favourites, however, are the flower products that are taken via smoke inhalation, which may in time lead the cannabis market to take on the appearance of the tobacco market, with strong brand loyalty and a possible state monopoly. Or cannabis sold in the form of a product intended for smoking could be sold by little known brands with little customer loyalty, unlike perhaps beverages or foods that are more likely to be recognised and categorised under a known brand name and a specific logo. These products can be sold in vending machines, such as our Master Lift Plus, which is perfect for selling this kind of product.
The risk factor
Investment in cannabis, as we have already pointed out, can be very profitable but at the same time very risky. Since the sector is not yet well regulated, it follows that it is entirely dependent on governmental developments and political decisions in each state. For example, in America, since there is still no effective legalization of cannabis at the federal level, American banks cannot provide services to cannabis companies and industries, and if this were not the case, the banks would be in violation of money laundering laws.
As if this were not enough, pro-legalization bills and policy decisions are highly dependent on the parties in power, and with new elections, states are always dependent on changes regarding the issue of legalization.
Having said that, we can take a look at the data and reports to understand the current investment situation in the cannabis market.
A good investor must always take into account the context in which an investment opportunity is to be placed, and in this market in particular, the type of cannabis and its relative use are crucial in determining the analysis estimates. This makes this process very complicated, so it is worth mentioning a few highlights of this megatrend.
- Archview says that the Canadian cannabis market has grown from 600 million in 2018 to as much as 2 billion in 2020, and, according to Headset, this market will be capable of reaching 5 billion in value by 2022.
- Canada has a monthly turnover of over USD 270 million, totalling USD 3.24 billion each year.
- Taking into account that the US market is the largest in the world, legal cannabis brought in 18 and 20 billion in 2020 alone. According to some, it is set to surpass $30 billion in 2022. It is worth more than the entire NBA business.
- The US cannabis market will reach $50 billion by 2026.
- The European Industrial Hemp Association (EIHA) estimates that the European CBD market is worth EUR 2 billion.
- According to The Brightfield Group, the European market will have grown to USD 3.8 billion by 2022. Growth will be especially impressive in Western Europe: Spain’s market will grow at an annual rate of 334 per cent, the Netherlands 364 per cent and Germany 284 per cent.
- The cannabis market reached around 400 million by the end of 2021, as estimated by a 2020 report by Prohibition Partners, which forecasts growth of over USD 3 billion in 2025 and a CAGR of 67%.
The global situation:
- Various studies show the global cannabis market reaching USD 22 billion in 2020, with a CAGR of 13.9% for the next five years.
- According to Arcview Market Research and BDS Analytics, the cannabis market is worth $12 billion in 2020 and will reach $630 billion by 2040. Most of this growth will be seen in Europe and North America.
- According to Bloomerg, the global market will be worth USD 91.5 billion in 2028 for a CAGR of 26.3% over this time period.
- According to Businesswire, $90.4 billion is expected globally by 2026 for a CAGR of 28% over five years.
- According to research by The Brightfield Group, the global size of the legal cannabis industry increased from $7.7 billion to $31.4 billion by the end of last year, 2021. Currently, the recreational market makes up only 37 per cent of the global total, but this will rise to 57 per cent by the end of the year.
In conclusion, as can be deduced from these figures, there is still debate among analysts at the moment, there are many doubts, and there are many questions to be resolved. But as you can well understand, we are dealing with an increasingly profitable sector, and investment in the cannabis market in the coming years may indeed prove to be a winning choice. Unfortunately, some still remember the case of 2017/18, when some investors got burnt with this sector, which has however changed and grown considerably in recent years.
But let us conclude the article with some tips for investing in this market:
Only devote a small percentage of your portfolio to this type of investment, no more than 5%. Have a time horizon of 5 to 10 years and consider a high loss tolerance, as this is still a very volatile sector. Finally, avoid buying individual companies, but rather use Etf’s, as the first choice exposes you too much to specific risk and becomes a game rather than a smart investment.
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