The numbers are in, and they look good: almost every projection shows the marijuana market growing exponentially in the next few years. What does that mean for pot stocks? It means they’re projected to see major growth in the next few years.
Remember that almost all the excitement building in the marijuana industry is about the future. The entire sector is excited about the cannabis market growing as more and more countries legalize recreational pot.
That has led many researchers to forecast an explosion in value in the next few years.
New Frontier Data says the U.S. marijuana market is set to grow at a compound annual growth rate (CAGR) of 21%, reaching more than $41.0 billion by 2025. That would be a huge upward gain from the $13.2 billion in 2019. (Source: “U.S. Legal Cannabis Market Projected to Double to $41.5B by 2025,” GlobeNewswire, Inc., December 9, 2020.)
Demand for legal weed is expected to grow in tandem, with 39% of all marijuana demand in the U.S. being met by the legal industry (as opposed to the black market) by 2025. Right now, legal purchases only satisfy 17% of the marijuana demand. Legalization is a big driver of this trend, leading to an overall weakening of the black market as people grow more comfortable with, and reliant on, the legal marijuana market.
“History is happening before our eyes as the events of 2020 are fundamentally redefining the U.S. cannabis market and will continue to do so for years to come,” said Giadha A. DeCarcer, founder and CEO of New Frontier Data. (Source: Ibid.)
“The pace and scale of growth the industry is experiencing is a compelling proof point that cannabis is evolving into a mainstream consumer category.”
It’s worth mentioning that all these numbers would be radically revised upward should the U.S. pass federal marijuana legalization in the intervening years. While that’s becoming unlikely to happen during Joe Biden’s presidency, there’s a good chance we could see movement on this front within a decade. That, in turn, would radically accelerate marijuana market growth—and lead marijuana stocks to rise.
And we’re not only going to see growth in the U.S.
Grand View Research, Inc. says the legal cannabis market will be worth $84.0 billion by 2028. This represents a CAGR of 14.3% from 2021 to 2028. (Source: “Legal Marijuana Market Worth $84.0 Billion By 2028 | CAGR: 14.3%,” Grand View Research, last accessed March 22, 2021.)
The growth is expected to come from the legal recreational cannabis market expanding and the medical marijuana sector developing more applications. These twin industries will help radically boost the value of pot stocks in the next decade.
And that could make the present a very good time to invest in marijuana stocks.
With the COVID-19 pandemic having largely stunted the growth of pot stocks (although it remains to be seen if it has had a severe impact on overall pot consumption), share prices were once again on the rise when Biden became president.
With the election of Biden and the Democratic-controlled Congress, many people were bullish on marijuana stocks because more lax marijuana laws were thought to follow. But the deadlock in Congress along party lines has dimmed much of that hope.
I won’t bore you with the details of the political machinations, but with the filibuster and hyperpartisan divides, we’re not likely to see Congress pass something as controversial as a pot legalization bill (although “controversial” only applies to the politicians; the American people are decidedly on the side of legal pot, according to polls).
A marijuana legalization bill would need 60 votes in the Senate, which means winning every Democratic senator on top of 10 Republican lawmakers.
In other words, it’s a pipe dream.
Biden could enact executive orders unilaterally, but he’s shown little interest in doing that for pot legalization.
All of that culminated in a quick rise and sudden fall of pot stocks in early 2021.
But the political back-and-forth and grandstanding across party lines isn’t going to stop the marijuana market from growing—nor stop marijuana companies from seeing revenue growth.
And as revenue grows, we’ll naturally see that correlated with the performance of marijuana stocks.
That brings us to a uniquely advantageous position: pot stocks are down right now due to the lost political momentum in the U.S., but the overall cannabis market is still set to grow dramatically in the next few years.
So, while many analysts and investors are backing away at the moment, there could be an opportunity to outsmart them and get in while investor interest wanes. That way, you can maximize your growth prospects as the industry inevitably rebounds due to marijuana market growth.
In other words, you could capitalize on the old investing adage: buy low, sell high.
Right now, investors are devaluing marijuana stocks (and their future growth prospects). At the same time, we’re seeing all the research and hard data point toward a massive, growing cannabis market.
Pot stock investors are mainly paying attention to the progress of U.S. marijuana legalization. Both institutional investors and retail investors are fixated on U.S. politics, and that makes sense—it’s hugely important to the future of the industry. But it’s not the only thing that’s important.
What’s more, irrespective of U.S. pot legalization, the marijuana market is going to grow. Organic growth is inevitable as more and more people move their purchasing from the black market to the legal cannabis market. And we’re going to see a proliferation of new medical marijuana applications as more research opens up alongside legalization.
Furthermore, as the industry matures, it’s going to find ways to create efficiencies and reduce production costs, which in turn will drive higher revenue.
When you look at the numbers, it’s hard not to be bullish about pot stocks for the long term. And that’s why I’m still a staunch supporter of buy-and-hold strategies as this nascent industry continues to grow.