The path to marijuana legalization hasn’t been easy. However, over the past few years, as more states legalize either medical or recreational marijuana, things have started to heat up. This has led to more legitimate investment opportunities in marijuana stocks.
On July 14, 2021, U.S. Sens. Chuck Schumer, Cory Booker and Ron Wyden introduced The Cannabis Administration and Opportunity Act. This bill seeks to legalize and regulate marijuana at a federal level. It would also help states expunge state marijuana charges from criminal records.
Schumer, the Senate Majority Leader, stated: “We’re getting some Republican support, and the country is realizing that all the myths about marijuana are just that — myths.”
With this, all eyes are on the marijuana industry (and by extension, marijuana stocks have also stayed in the spotlight). Adding to the excitement, several established marijuana companies are already poised to break into the U.S. market, such as Canadian pharmaceutical company Tilray (NASDAQ:TLRY).
While there’s plenty of reason for hype behind pot stocks, things aren’t quite that simple. A key question lingers in many investors’ minds: Will the U.S. manage to legalize marijuana any time soon? The chances are good it won’t happen in 2022.
With a bill this large, it could take years to pass. However, this isn’t a deal breaker for the marijuana market at all. In fact, it could be smart to invest in marijuana stocks now. If it ends up being legalized in a few years, that could mean incredible profits down the line for investors.
With that in mind, let’s take a closer look at the investment case behind pot stocks.
Investing in Marijuana Stocks: High-Time for Legalization
Currently in the U.S., the legality of marijuana is a state-by-state deal. Right now, medical marijuana use is legal in 37 states. Similarly, recreational use of marijuana is legal in 18 states, with some lines being blurry. For instance, in Washington, D.C., recreational use is legal, while recreational sales are not.
Recently, it was estimated that “12% of Americans are active marijuana users.” Using Census numbers from 2020, that means a whopping 39 million Americans use marijuana regularly.
During the Covid-19 pandemic, the market increased 46% from 2019, hitting a record of $17.5 billion in 2020. The week of March 17, 2020 (the week when the first large lockdowns were imposed), dispensaries saw a 30% increase in sales in just one week. Perhaps most important of all when it comes to investing in marijuana stocks are the subsequent increases in market penetration induced by the pandemic, with marijuana use now gaining popularity that’s getting closer to that of alcohol.
This finding dovetails with the fact that youth are increasing their use of marijuana, while consumption of alcohol in this demographic is declining. While it might take years for the substance to overtake booze (if at all), this is an indicator of marijuana’s long-term potential and popularity.
And there are plenty of marijuana producers there to meet this increased demand. For example, Curaleaf Holdings (OTCMKTS:CURLF) has 106 dispensaries across 23 states. Likewise, Green Thumb Industries (OTCMKTS:GTBIF), the second-largest marijuana stock by market cap, has retail stores in 14 markets across the U.S.
Economic Opportunities in Marijuana Are Bubbling Up
Another good indicator for broad marijuana legalization is the immense economic benefit of adding a new market to the economy. As Investopedia notes:
“The economic benefits of legalizing weed have already been apparent as the first states have moved to change their legal positions. Overall, legal marijuana could mean a big push for state economies and big bucks for both the state and the federal governments … Should marijuana become legal on a federal level, the benefits to the economy could be exceptional: A report from cannabis analytics company New Frontier suggests that federally legal pot could generate an additional $105.6 billion in aggregate federal tax revenue by 2025.”
An additional $105.6 billion in federal tax revenue is a big deal and a great catalyst for the marijuana industry. If you already hold pot stocks, chances are you will make plenty in returns upon federal legalization.
While there is currently no timeline on when federal legalization will happen, there are still plenty of opportunities to invest in this burgeoning market.
A Closer Look At Pot Stocks
When choosing a marijuana stock to invest in there are a few different routes you can take. Since medical marijuana is legal in more states and more widely accepted, medical marijuana plays are not going anywhere any time soon. However, many marijuana stocks cover both medical and recreational plays.
Understanding the products might help you choose a stock in this space. There are two compounds in weed that people use for different reasons. THC is the compound in marijuana that can make you high, whereas CBD is a compound that will simply relax you. CBD is legal on the federal level, but still illegal in some states. It can help relieve pain, anxiety and aid in sleep. Most medical marijuana companies also produce and sell CBD.
Examples of medical and recreation marijuana hybrid companies include Tilray and Trulieve Cannabis (OTCMKTS:TCNNF). These companies dominate the medical market but also have recreational offerings and a variety of products made with THC and CBD. Trulieve even sells CBD ointments to help with joint and muscle pain.
Meanwhile, pure medical marijuana stock plays include companies like Sundial Growers (NASDAQ:SNDL) and Curaleaf Holdings. If you’re looking for a pure CBD play, you might consider Charlotte’s Web Holdings (OTCMKTS:CWBHF). This company offers a range of CBD products from edible gummies, oils and topical creams for pain relief. It even has CBD products for dogs.
It is much easier to find pure medical plays than recreational, since medical is legal in more territories. However, some marijuana-focused companies plan to use their standing in the medical marijuana space to eventually expand into the recreational marijuana space. For example, Green Thumb Industries caters to both markets, but expanded its focus on recreational marijuana in 2020 upon legalization in Illinois and New Jersey. The company ultimately hopes to use its position in the medical market to expand quickly when recreational use is legal in more states.
There are even non-cannabis companies looking to get in on the marijuana profits. For instance, Coca-Cola (NYSE:KO) may be looking to make a deal with Aurora Cannabis (NASDAQ:ACB) to make cannabis-infused drinks. Additionally, Tilray and Anhauser-Busch (NYSE:BUD) have been working together since 2018 to research drinks containing THC and CBD to market in Canada.
As you can see, there are many choices when it comes to investing in pot stocks. You pan pick pure-plays, CBD plays or even these innovative plays by companies outside of the marijuana sector. As with all stocks, it is important to do extensive research to find exactly what you want.
Top Marijuana Stocks to Watch
Caroline Rodrigues is a web editor for InvestorPlace.com. On the date of publication, they did not hold any position (either directly or indirectly) in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.