The marijuana industry is scorching hot right now, and it’s no wonder that investors are seemingly champing at the bit to get their hands on a company, or series of companies, with strong double-digit growth potential.
According to cannabis research firm ArcView, the legal marijuana market could grow by roughly 30% per year through the end of the decade. Investment firm Cowen & Co. shares a somewhat similar sentiment, forecasting growth from $6 billion in legal pot sales in 2016 to $50 billion by 2026. That’s good for a compound annual growth rate of better than 23%. You’d struggle as an investor to find an industry that could consistently grow its sales for an average of 23%+plus each year for a decade.
Image source: Getty Images.
The tide is shifting on cannabis
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One reason why cannabis is exploding is the major shift in consumer sentiment toward the substance. National pollster Gallup found that 60% of respondents in its 2016 survey wanted to see weed legalized nationally. Comparatively, just 25% of respondents shared the same opinion in 1995, the year before California became the first state to pass a compassionate use medical cannabis law.
The aforementioned dollar figures are also an allure for businesses, investors, and governments alike. After raking in $135 million in tax and licensing revenue in 2015 on $996.2 million in legal marijuana sales, Colorado, which was one of the first two states (along with Washington) to legalize recreational pot in 2012, wound up surpassing the $1.1 billion legal-weed sales mark through the first 10 months of 2016.
Long story short, the state probably earned well in excess of $135 million in additional revenue last year. Furthermore, with the passage of Prop 64 in California, $1 billion in new tax revenue stands to be generated annually once retail sales commence.
Weed investment options worth avoiding
The enormity of these legal sales figures would probably attract most investors to the retail side of the equation, including dispensaries or marijuana-infused products, such as drinks or foods. Unfortunately, this can be a tightly regulated and highly competitive space filled with a bounty of smaller-run companies. Investing in the retail aspect of marijuana simply isn’t appealing at the moment, especially with a number of inherent disadvantages still in play for the industry.
Image source: GW Pharmaceuticals.
With so few marijuana stocks trading on reputable exchanges (e.g., NYSE or Nasdaq), investors might also be attracted to the largest pot stock of the bunch, GW Pharmaceuticals (NASDAQ: GWPH). GW Pharmaceuticals has discovered more than five dozen cannabinoids from the cannabis plant, and it’s testing these cannabinoids in a variety of ailments.
Arguably the most intriguing product GW Phamaceuticals has in its pipeline is Epidiolex, an experimental drug that yielded positive late-stage results in treating two types of childhood-onset epilepsy. Still, GW Pharmaceuticals appears to be at least three years away from profitability, and thus remains an…