The 411 on 420: A Beginners Guide To The Marijuana Economy & Cannabis Investing
What you need to know to cash in on cannabis
By: Stacey Tisdale & Carolyn Brown
The cannabis industry is expected to triple in the next five years. There is no denying that cannabis is big business. Retail sales of medical and recreational marijuana in the U.S. eclipsed $15 billion by the end of 2020. States raked in a combined $6.9 billion in tax revenue from recreational marijuana use. Public and private cannabis companies raised $5.5 billion from investors in 2019 and $2.6 billion in the first half of 2020 amidst the coronavirus pandemic.
What makes for pot’s hot outlook? The growing number of states that have legalized cannabis in some form in recent years since California became the first to allow for is the medical use, and Washington and Colorado became the first states to legalize marijuana for recreational use.
During the 2020 election New Jersey, Arizona, South Dakota, and Montana became the newest states to legalize recreational marijuana. South Dakotans also backed creating a medical marijuana program for people with severe medical conditions. Mississippi voters approved legalizing cannabis for medical use. Virginia lawmakers recently approved legislation that would legalize recreational use of marijuana by 2024.
Just 10 years ago, marijuana was illegal across much of the United States. While federally cannabis use remains illegal, 35 states plus the District of Columbia now have laws legalizing marijuana for medicinal and/or recreational use.
Today, there are even worldwide cannabis celebrations. In cannabis culture, 420 is code for marijuana and hashish consumption, especially smoking around the time 4:20 p.m. This popular slang for smoking marijuana also comes from April 20th being an annual day of jubilee among cannabis enthusiasts.
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Marijuana’s Move into the Mainstream Economy
Of course, there is always backlash in any effort to decriminalize the controversial plant. But marijuana’s move into the mainstream economy is mounting. A recent survey found that 1 in 8 adults are avid marijuana users. Today, 35 states and the District of Columbia have legalized marijuana for medical use, while 15 states and the District of Columbia have made it legal for adults 21 and older to buy and consume recreational marijuana.
With President Joe Biden in the Oval Office, a Democrat-controlled House, and a 50-50 split in the Senate, there is growing optimism overseeing an end to federal marijuana prohibition. Senate Majority Leader Charles Schumer and Senators Cory Booker and Ron Wyden have announced they intend to make cannabis reform a priority this year.
According to the cannabis investment firm Viridian Capital Advisors, given an attractive growth outlook for both medical and recreational markets in the U.S., improved execution by operators, healthier balance sheets, and valuation trends for certain companies, now is an attractive time to invest in the U.S. cannabis market.
Hashing Out Cannabis Opportunities
Many top cannabis companies are expected to report positive earnings in 2021. These companies primarily breakdown into three groups. Marijuana growers and retailers that are cultivating and packaging cannabis products for consumption. Biotech firms that are developing and marketing cannabis-based drugs. Other companies that provide ancillary products and services, including consulting, distribution, hydroponics, lighting systems, and packaging.
The 13 Major Marijuana Sectors:
· Agriculture Technology
· Ancillary Cultivation & Retail
· Ancillary Products & Services
· Biotechnology
· Consulting Services
· Consumption Devices
· Cultivation & Retail
· Hemp
· Infused Products & Extracts
· Investment/M&A
· Physical Security
· Real Estate
· Software
The marijuana sector as a whole has experienced five consecutive months of moving higher in the stock market. Although there was market volatility with a sharp decline in marijuana stocks the last two weeks of trading in February 2021. Still the sector managed to see gains, with American cannabis stocks outpacing the rest of the market with 20.5% gains for the month, according to StreetInsider.com. The cannabis industry is poised to grow rapidly in 2021.
Viridian Capital Advisors forecasts more than $20 billion in cannabis sales for 2021, up from $17 billion in 2020, and expects sales to exceed $35 billion by 2025. The company anticipates economic hardship caused by COVID-19 will be a key driver of cannabis expansion in certain states with cannabis providing a rare opportunity to generate taxes and jobs.
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Investing In Cannabis Stocks For As Little $5
You can get into this exploding market with just a few dollars through apps like Stash, which lets you start investing for as little as $5. Stash offers fee-free trades, fractional share investing, and account fees starting at $1 per month. Using Stash, you can invest in increments of $5 to buy single cannabis stocks. You also can opt to open an account at discount brokers such as TD Ameritrade with no minimum investment requirement.
You can purchase stock shares in companies like Green Thumb Industries (OTC:GTBIF), which has 50 operational dispensaries, but holds licenses to open as many as 96 retail stores in 12 states across the U.S. Another is Curaleaf (OTC:CURLF) which looks to be on track to become the first pot stock to surpass $1 billion in annual sales this year. Curaleaf holds licenses for more than 130 retail spots and has a presence in close to two dozen states.
Before you invest in any marijuana stock, first research the company. Examine its management team with a special focus on top executives' track records in the industry and look at the company's strategy for growth and expansion. Second, establish how much you can afford to spend. Third, check out fees, convenience, and trading platforms to determine what’s best for you.
Keep in mind the marijuana industry is still in its early stages, so many companies may not be profitable just yet. You can gauge how quickly a company expects to become profitable by checking out information that can be found in the investor relations section on company websites, annual reports, or SEC filings.
An alternative to single stock purchases is to invest in Cannabis-based Exchange Traded Funds (ETFs), using Stash or a discount broker. ETFs trade like stocks on an exchange such as Nasdaq or NYSE, but instead of buying single company shares you are investing in a basket of multiple companies.
Advantages to ETFs are trading flexibility, portfolio diversification, lower costs, and tax benefits. Want some help building an ETF portfolio? A robo-advisor might be best for you. Instead of picking your own investments, these automated online investment management services build a portfolio for you based on your goals and risk tolerance.
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Using A Robo-Advisor
Robo-advisors like Wealthfront have a user-friendly platform and offer low-cost access to a diverse investment lineup, goal-setting, planning tools, banking, and a variety of tax-saving strategies. Most robo-advisors use mutual funds or ETFs rather than individual stocks to build your portfolio. They buy fractional shares, which means you could own 10 or 12 ETFs with $1,000.
What’s more, robo-advisors are much cheaper than real-life human financial advisors. Most robo-advisors charge between 0.25% and 0.50% as an annual management fee. There’s also free options like Sofi Automated Investing.
