It's the year 2020, marijuana is not only legal in some places, but has already become a multi-billion dollar business in some countries. A relatively young market with promising companies that are still at the very beginning. That offers considerable growth potential. In the last few years - along with the trend towards social liberalization towards cannabis - the shares of listed cannabis companies have also become more and more interesting for investors. At the beginning of 2018, there was a real boom in cannabis stocks. Comparable to the hype surrounding cryptocurrencies a year earlier, the value of some cannabis stocks soared. But in 2019 the disenchantment came and most stocks of the big players in the cannabis business recorded losses of up to 80%. 

A year later, cannabis stocks are still very topical. After the boom and the fall, shareholders and investors nowadays split into two camps. On the one hand there are those who want to take advantage of the financial opportunities and potential of the burgeoning cannabis market. On the other, those who call for caution in the face of the uncertain legal and political future that lies ahead for the industry. The big question that thousands of (hobby) investors are now asking themselves in early 2020: Should I be currently investing in cannabis stocks or not?  

Benefits of cannabis: a growing market with a lot of potential  

Cannabis companies are new, and their stocks are even newer. As the industry continues to grow, more of these companies will go public and those that already exist will expand in size and value. Other promising markets could open up for cannabis companies in the coming years. A particular focus is currently on the USA: There are efforts there to legalize cannabis nationwide, but this has so far failed due to resistance from the Republicans. Nevertheless, there are currently clear liberal tendencies in dealing with the topic of cannabis, especially in the western world. Legalization for, for example, the entire US market in the next 10 to 20 years is considered quite possible. Such an expansion in the US market would be a gold mine for cannabis companies - and accordingly for their investors too. 

What are the advantages of legalization?

Plus, the potential of the cannabis market is huge. After all, cannabis has long been considered widespread in society - also in Germany and France. According to the current drug and addiction report of the federal government from November 2019, almost 43 percent of 18 to 25 year olds stated that they used cannabis more or less regularly. In the event of legalization and the associated regulation, there would be considerable income from cannabis: In addition to tax revenues for the state, also for companies active in the industry. This in turn would have a correspondingly positive effect on the stock market prices of cannabis companies. Some experts even estimate that the global market for cannabis products could increase tenfold by 2030. A real opportunity for all investors!

However, the growth potential must also be viewed with caution because it is heavily dependent on political developments. Although the medical benefits are increasingly undisputed, the road to legalizing cannabis products for recreational use in some countries could still be very long and rocky. That brings us to the potential drawbacks of investing in cannabis stocks.

The disadvantages: risky market that is subject to political fluctuations

Despite the more liberal social tendencies in numerous Western countries, it is by no means certain that legalization will actually be enforced in many countries in the next ten years. In addition, possible future laws and regulations could slow down the entire industry. In the USA, for exampleare known to be the Republicans against legalized recreational and medical marijuana at the state level. There are still ways to negate state marijuana laws, which could largely drive businesses, growers and distributors out of business. Although Canada allows recreational cannabis use across its country, losing some or even all of the US states as customers would shrink the sector and sharply lower stock prices in the process. The entire industry and thus also the shares of the companies are highly dependent on future political decisions. Clearly, such an unpredictable future carries great risks for all potential shareholders in cannabis stocks.

Current level of cannabis stocks

In addition, the young industry is still in a turbulent start-up phase. Due to the great boom, there were hundreds of cannabis stocks in a very short space of time. However, a large part of the mass can hardly or not at all be regulated. For example, many were traded as so-called over-the-counter penny stocks in the United States. Such stocks can gain in value extremely quickly, but also lose it again just as quickly. Oftentimes, these stocks disappear overnight, taking their investments with them. Such developments are not unusual in fast-growing, young industries. For shareholders, however, they represent a risk that is difficult to calculate. Most experts (especially newcomers) therefore currently advise against investing. It remains to be seen 

Investment cannabis stocks: Not for the faint of heart

In summary, the young cannabis industry offers investors, on the one hand, considerable growth potential for the coming years; on the other hand, it also harbors great risks. The past two years in particular have made it clear what high fluctuations in the cannabis market can be expected in future. Investing can be worthwhile for investors with staying power and willingness to take risks. Everyone else should rather wait and see in which direction the cannabis market will develop in the next few years.

After all: According to experts, the greatest low point has now been overcome and improvement is in sight. Still, investing in the cannabis market is currently not for the faint of heart.

 

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