The cannabis industry is a growing market attracting more and more investors. Even though some argue about the ethics behind the business, the profitability of this market makes individuals interested.
In fact, investing in cannabis is not a new trend. In fact, the first ETF in the sector in the United States emerged in 2017. However, in recent months the trend has gained popularity in the heat of the legalization of the plant, both for medicinal and recreational use.
The State of New York, which recently legalized recreational cannabis, established a 9% tax on cannabis sales to which an additional 4% will be added to be distributed between municipal and county authorities. In total, the authorities plan to collect $350 million a year in taxes alone.
“It is clear that it is a fashion sector in recent years, progress in its legalization has given rise to new legal businesses related to the sector that have rapidly acquired a large volume,” says Antonio Jiménez Colilla, Mapfre’s financial advisor, present on the Finect advisor platform. An example of this is the company Canopy Growth, which today reaches 30,000 million dollars.
But what about its economic benefits? Estimates foresee that only in the United States it could move up to 30,000 million in 2025.
Investing in the cannabis industry raises many doubts due to the regulation of its use. While therapeutic cannabis is increasingly widespread, recreational use is allowed only in a few countries. In many countries, there is a legal vacuum which poses a regulatory risk for companies that wish to invest.
Another doubt concerns the valuation of its assets. Since the cannabis industry is pretty new, it becomes quite difficult to assess whether a company is expensive or cheap nor it is to assess whether a product will please the market, as there are no past references in the sector which could give investors a clue.
Furthermore, the cannabis industry stands in a volatile environment. The regulations change very quickly making it hard for businesses to open new cannabis markets even in countries where the substance is legal. The stability of the policies is still pretty weak.
Finally, cannabis brings a reputational problem as some people considered the substance to be a “drug”. Some companies fear that they will lose brand image out of investing in the cannabis industry.
If you want to invest in cannabis, most experts recommend having a look at ETF or investment funds which allow diversification among listed companies in the sector. ETFs such as MJ or Amplify Seymour Cannabis invest at least 80% of their portfolio in companies related to cannabis.
