Cannabis and cryptocurrency both operate within a murky regulatory environment, characterized by high levels of volatility and a reliance on media attention and the enthusiasm of millennials. However, while both industries share these similarities, only cannabis has received approval from regulators to move forward.
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For crypto investors seeking alternative lucrative industries to explore, we recommend delving into our detailed analysis of the marijuana sector within the United States. The cannabis industry shares similarities with cryptocurrencies as a burgeoning market that is still navigating regulatory frameworks, yet it boasts more favorable legal conditions within the nation. Dive into our report to gain insights into the US cannabis landscape, recent advancements, and top-performing marijuana stocks.
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Cannabis and Cryptocurrency: A Rocky Path to Widespread Acceptance
The cannabis industry experienced a significant surge in growth due to recent efforts to decriminalize marijuana in the US and Canada. This shift in legislation allowed for the emergence of a new cash crop, leading to widespread legalization for both medical and recreational use in various states. Despite the federal prohibition, the industry gained momentum and attracted attention from investors and consumers alike.
Following the decline of the crypto speculation frenzy in September 2018, many investors redirected their focus towards the cannabis sector. This sudden influx of interest resulted in soaring valuations for certain cannabis companies, even though most of them were not listed on major US stock exchanges. Instead, these marijuana stocks were primarily traded on OTC markets, where regulatory oversight was minimal. The shift in investment trends highlighted the growing influence and potential of the cannabis industry in the financial market.
The cannabis market, like the new crypto, experiences volatile boom and bust cycles that can expose inexperienced investors to significant losses. Currently, all major marijuana stocks are in a bear market, trading at discounted prices that show a noticeable correlation with crypto assets.
On the other hand, while the crypto market faces uncertainty due to recent SEC lawsuits against major exchanges like Binance and Coinbase, the cannabis industry is optimistic about a more positive future. There are promising signs that indicate a potential bull run is on the horizon, offering hope for investors in the cannabis sector.
More states are set to legalize cannabis in the coming years
Cannabis has historically been considered illegal in numerous countries, including the United States, where it was categorized as a Schedule I substance under the Controlled Substances Act of 1970 due to its perceived high potential for abuse and lack of recognized medical benefits. The criminalization of cannabis resulted in the disproportionate imprisonment of nonwhite individuals and those from lower socioeconomic backgrounds, while simultaneously fostering an unregulated market for marijuana to thrive with minimal interference from law enforcement.
Despite its federal illegality, a majority of states have now legalized either medical, recreational, or both uses of cannabis. Just recently, Minnesota joined the ranks as the 23rd state to legalize recreational marijuana, with more states anticipated to enact similar legislation in the coming years.
In Florida, a proposition to legalize recreational marijuana has garnered adequate signatures to be included on the 2024 ballot. The likelihood of the measure passing appears promising, given that a University of North Florida Public Opinion Research Lab poll discovered that 70% of respondents are in favor of the amendment.
Ohio is potentially moving towards legalizing recreational cannabis later this year, with House Bill 168 awaiting its initial committee hearing. The Coalition to Regulate Marijuana Like Alcohol (CTRMLA) is actively collecting signatures throughout the state to place the proposal on the November ballot, supported by a 2022 poll conducted by Spectrum News/Siena College indicating that 60% of Ohio residents are in favor of adult-use marijuana legalization.
Pennsylvania is another state that could be heading towards the legalization of recreational marijuana, especially considering its proximity to neighboring states where cannabis is already legal. With 56% of Pennsylvanians supporting the expansion of existing legislation to allow recreational marijuana, as indicated by a survey from Muhlenberg College, there are currently three separate proposals awaiting action by the state house to legalize marijuana and implement a tax on its sales.
Several states are anticipated to join the cannabis wave in the upcoming years, drawn by the industry’s potential for multibillion-dollar profits and tax money.
Legalization of marijuana enjoys strong bipartisan support
Based on a recent study conducted by the Pew Research Center, the prevailing sentiment among the majority of adults in the United States is that marijuana should be legalized either for medical and recreational purposes (59%), or solely for medical use (30%). This represents a significant increase in public support for the legalization of marijuana when compared to a similar survey conducted in 2021.
While there are still noticeable differences in opinions based on political affiliation and age, a very small percentage of survey respondents are completely against the idea of legalizing cannabis. The study found that Republicans and Republican-leaning independents are more cautious about legalizing marijuana for recreational use, with 45% in favor of legalization for both medical and recreational use, and an additional 39% supporting legalization for medical use only. In contrast, 73% of Democrats and Democratic leaners are in favor of legalizing marijuana for both medical and recreational use, with an additional 21% supporting legalization for medical use only.
The findings of the report highlight the evolving attitudes towards marijuana legalization in the United States, with a growing number of adults expressing support for broader access to cannabis for both medical and recreational purposes. Despite lingering partisan and age-related differences in opinions, the overall trend indicates a notable shift in public sentiment towards the legalization of marijuana.
The partisan split on the issue of marijuana legalization is not only evident between conservative and liberal factions within each party but also across different age groups. While conservative Republicans are less likely to support full legalization compared to their moderate and liberal counterparts, a similar trend can be seen among conservative vs liberal Democrats. The data shows that there is a significant difference in opinion between the two ends of the ideological spectrum within both major political parties.
Furthermore, when looking at the breakdown by age, it becomes apparent that older voters are generally less inclined to support the legalization of marijuana, regardless of their party affiliation. Despite this generational gap, a majority of Democrats across all age groups are in favor of legalizing marijuana for both medical and recreational purposes. On the other hand, Republicans tend to show more support for medical marijuana legalization rather than full recreational use, indicating a nuanced stance within the party based on the specific context of medical necessity.
The federal decriminalization process began with Biden’s pardon for marijuana.
A recent study conducted by Pew Research Center comes in the wake of President Biden’s decision last year to pardon all previous federal convictions related to simple marijuana possession. This action, seen by many as a significant move towards the decriminalization of marijuana, impacts numerous Americans who were previously convicted of this offense. The pardon enables them to obtain a formal “certificate of proof” demonstrating their official pardon, thereby removing barriers to securing housing or employment opportunities.
President Biden emphasized the unjust nature of incarcerating individuals solely for the possession or use of marijuana, stating that such actions have disrupted countless lives. He highlighted the disparities in arrests and convictions between white individuals and those from Black and brown communities, despite similar rates of marijuana usage among these groups. Biden underscored the negative impact of criminal records for marijuana possession on individuals’ access to employment, housing, and education.
In addition to the federal pardons, President Biden called upon governors to pardon individuals convicted of state-level marijuana offenses. He also urged the Secretary of Health and Human Services and the Attorney General to reclassify cannabis from a Schedule I drug, a classification that equates marijuana with substances like heroin and LSD. This reclassification would shift marijuana policy from the criminal justice system to the realm of public health, potentially enabling more focused law enforcement efforts on serious crimes while facilitating medical research on marijuana.
Cannabis enterprises will have access to financial services according to the Safe Banking Act.
The conflict between state and federal laws in the US is evident not only in the realm of same-sex marriage but also in the case of marijuana usage. While some states have legalized recreational and medical cannabis, the federal government still classifies it as a controlled substance. This divide creates challenges for banks and credit unions that risk federal charges if they provide financial services to cannabis businesses, despite being legal at the state level.
As a result, cannabis companies have been forced to navigate through difficult circumstances, such as operating solely with cash or paying high fees to state-chartered banks to cover compliance costs. These challenges have a direct impact on the profitability of the industry, as companies face lower profit margins and higher taxes. The current banking restrictions hinder the growth and development of the US cannabis industry, highlighting the need for a more cohesive approach to marijuana regulation at both the state and federal levels.
The recent bipartisan legislation that has been reintroduced in Congress aims to provide relief to marijuana producers by addressing the issue of operating in all-cash. The Secure and Fair Enforcement (SAFE) Banking Act of 2023, which has been passed in the House of Representatives seven times but failed to get through the Senate, is expected to see a vote on the Senate floor for the first time. This comes as majority leader Chuck Schumer, D-N.Y., has expressed his support for the legislation, signaling a potential breakthrough for the bill.
Senator Jeff Merkley, D-Ore., emphasized the dangers of forcing legal businesses to operate in all-cash, citing the risks of robbery, money laundering, and organized crime. He expressed optimism about the bill’s progress, stating that there is now a path for SAFE Banking to move through the Senate Banking Committee and get a vote on the floor of the Senate. The goal is to ensure that all legal cannabis businesses have access to the financial services they need to maintain the safety of their employees, businesses, and communities.
The reintroduction of the SAFE Banking Act of 2023 in Congress has brought renewed hope for marijuana producers, as the bill is expected to address the challenges of operating in all-cash. With the support of majority leader Chuck Schumer, D-N.Y., the legislation is anticipated to finally see a vote on the Senate floor after being passed in the House of Representatives multiple times. Senator Jeff Merkley, D-Ore., highlighted the urgency of the situation, emphasizing the risks associated with forcing legal businesses to operate in all-cash and expressing the need to rectify this issue.
Senator Merkley also expressed confidence in the progress of the bill, noting that there is now a clear path for SAFE Banking to move through the Senate Banking Committee and ultimately receive a vote on the floor of the Senate. The goal is to ensure that all legal cannabis businesses have access to the financial services they need in order to enhance the safety and security of their employees, businesses, and communities.
The SAFE Banking Act would prohibit federal regulators from:
- Imposing penalties on banks that offer services to legal cannabis enterprises
- Revoking federal deposit insurance for banks involved in such transactions
- Encouraging banks to deny or reduce services for marijuana businesses
- Implementing measures against loans to cannabis business owners or operators
Despite the uncertainty surrounding the passage of SAFE Banking in the Senate, changing perspectives on marijuana use by the public and the supportive cannabis policies of the Biden administration provide reasons for guarded optimism. If legal marijuana businesses, valued at $13 billion, gain access to mainstream banking services, they will have the opportunity to secure loans and provide more competitive offerings to consumers. This could potentially undermine the illegal cannabis market, which is estimated to be worth around $100 billion.
By 2030, the US cannabis market is anticipated to grow to $40B
The US cannabis market, which was valued at $13.2 billion in 2022, is projected to experience significant growth, with an expected compound annual growth rate of 14.2% leading to a market value of $40.1 billion by 2030. This growth is primarily attributed to the increasing recognition of the medical benefits of cannabis and the ongoing research into its therapeutic properties for treating a wide range of chronic conditions, including anxiety, depression, seizures, cancer, AIDS, and Alzheimer’s.
The report highlights that the approval of drugs like Marinol and Syndros by the FDA for managing chemotherapy-related side effects, such as nausea and vomiting, is a key driver behind the industry’s expansion. These developments underscore the growing acceptance of cannabis-based treatments within the medical community and the broader population, paving the way for further advancements in the field of medical cannabis research and innovation.
In 2022, the medical sector of the cannabis industry held the majority of revenue at 77.0%. However, projections indicate that between 2023 and 2030, recreational marijuana consumption is expected to experience the most significant growth rate at 19.1%. This surge is attributed to the widespread adoption of marijuana by a large number of Americans seeking alternative treatments for various health issues.
Despite the dominance of medical cannabis in revenue generation, the recreational use of marijuana is poised to outpace it in terms of growth in the coming years. The increasing acceptance of marijuana as a non-prescription remedy for different health conditions among the American population is a key factor driving this trend. As more individuals turn to cannabis for its therapeutic benefits, the recreational segment is anticipated to see substantial expansion in the foreseeable future.
Retail investors adore cannabis stocks.
For a large number of individuals in the United States, marijuana, whether used for recreational or medicinal purposes, plays a significant role in their day-to-day lives. This factor contributes to the appeal of cannabis stocks to the average investor when compared to more intricate financial instruments like derivatives, mutual funds, and indices. The straightforward reasoning behind investing in shares of marijuana companies (“More people use marijuana if it’s legal — prices go up”) draws in many ordinary investors, including members of the well-known WallStreetBets community on Reddit, which gained attention after causing a 400% surge in GameStop stock in just one week.
Looking back, the remarkable short squeeze on a struggling video game retailer would have been impossible to orchestrate if it had been driven solely by greed. The primary driving force behind GameStop’s uprising was a deep-seated frustration with the establishment, particularly directed at “hedgies” — large hedge funds that profited from the thriving market despite the recession caused by the pandemic. Interestingly, marijuana, historically associated with counterculture movements and marginalized communities, firmly maintains its status as a symbol of rebellion against authority in the collective American consciousness.
With that in mind, it is not surprising that cannabis stocks, particularly those of Tilray, Canopy Growth, and Aurora Cannabis, became favorites among members of the WallStreetBets community, experiencing a 50% surge in February 2021 following the Democrats’ push for marijuana legalization. Despite subsequent sell-offs, many investors still hold a strong interest in marijuana stocks, making it advisable to keep an eye on investment-related subreddits.
Compared to other industries, the legal marijuana business is still not as consolidated.
Due to its nascence, the US marijuana industry is yet to see any established players occupying a high share of the market. Unlike winner-take-all markets, where a small number of leading companies dominate the sector, the cannabis market still has lower barriers to entry for newcomer competitors.
What it also means is that there’s still a chance to be early to the industry that looks set to grow as more Americans consider open marijuana use socially acceptable. Below, you can find our picks for the top cannabis stocks that could see strong growth in the near future.
Note that all these companies (except Tilray) are currently trading on OTC markets and Canadian Securities Exchange (CSE), so make sure your broker supports OTC and foreign securities trades if you decide to invest in cannabis stocks.
There are dangers associated with investing in the cannabis sector
The cannabis market, being in its early stages, is facing numerous challenges that potential investors need to carefully consider before making any investment decisions. One major concern is the prevalence of fraudulent activities within the industry, with scam artists taking advantage of the hype surrounding cannabis to deceive unsuspecting investors. The Securities and Exchange Commission has even issued warnings to investors about the risks of market manipulation and investment fraud in marijuana-related companies.
Legal risks also pose a significant threat to the cannabis market. The industry’s growth is heavily dependent on legislative changes, making marijuana stocks highly sensitive to any negative developments in regulations. The ongoing conflict between state and federal laws regarding the legality of marijuana further complicates the situation, creating uncertainty for investors. While optimism surrounds potential legislative changes like the SAFE Banking Act, there is always a possibility of setbacks that could impact the market negatively.
Additionally, the valuations of marijuana companies are subject to volatility and uncertainty, given the industry’s nascent stage and the lack of established companies on major stock exchanges. If these valuations become inflated and fail to meet investors’ expectations, it could lead to a market bubble that eventually bursts, causing widespread damage. Investors need to exercise caution and conduct thorough due diligence to navigate the risks associated with investing in the cannabis market effectively.
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