Marijuana as the Next Boom Industry
There is no disputing that marijuana stocks have been some of the best plays in 2019—perhaps even over the past decade or so.
While not appearing in force until the mid-2010s, marijuana stocks have made their presence felt throughout the stock market by racking up astronomical gains in relatively short periods of time.
This has led some to believe that the current marijuana stocks in circulation may be part of a “green rush”—a fast-growing new industry that becomes the “it” sector of its day.
The closest analogue to this is the tech boom. The silicon rush of the 1990s and 2000s saw companies like Amazon.com, Inc (NYSE:AMZN), Facebook, Inc. (NASDAQ:FB), Netflix, Inc. (NYSE:NFLX), Alphabet Inc (NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL) come to dominate the market with the highest returns around. Whereas once companies that were big on production like “Big Auto” and “Big Oil” owned the biggest shares of gains throughout much of the 20th century, they were quickly displaced in the silicon rush that pushed them into an “old guard” status. These were solid stocks with healthy returns and dividends, but the days of 100% gains in a year were gone for many of these blue-chip companies.
Tech helped propel that massive turnover, with investors looking to take riskier bets (for the chance at far higher rewards), eschewing older companies for the hot new tech stocks that populated the market at the time.
Some won, some lost, but one thing is undeniable: for the investors who made the right plays in the tech boom, they became very rich.
And now we may be seeing the same thing taking place. Only now, it is the tech industry that is being displaced by marijuana.
You see, many of the companies listed above are far too large to see 100% gains year over year for perpetuity. Amazon already sells above $1,000.0 a share and is the first trillion-dollar company; for it to double in value each year for the next several years would create a company of a truly implausible size.
Marijuana companies, on the other hand, are still relatively small enough—and with enough future potential out there in the marijuana market—to grow several times over within the next five years, meaning hitting an average rate of 50%-plus growth per year for the next several years isn’t out of the question. Hell, we could even see growth rates of that size for a decade or more, depending on how fast countries legalize marijuana.
Which is to say that there is no industry quite like marijuana right now that has that magical combination that creates a boom industry: potential, relatively small companies, huge opportunities for growth in the near future, and a penchant for innovation.
Innovation is most important to note because, much like the tech sector, marijuana companies are highly focused on innovation. After all, marijuana has been under the purview of criminals for decades now. Despite what Breaking Bad may have us believe, your average drug runners are often pouring too much money into research and deveopment. Now, with potentially hundreds of billions of dollars on the line in future profits, companies will be shoveling truckloads of money into finding the best methods to yield the most fruitful cannabis crops.
That makes marijuana companies, in a way, a lot like tech companies themselves.
All this comes together to create the most impressive industry we’ve seen since the nascent Internet tech sector of the 1990s.
Why Marijuana Stocks Are More Exciting than Tech Stocks
One of the major reasons I believe that marijuana is set to be the next big thing on the stock market is because of the tech industry’s failures of late.
The most glaring examples are the two big initial public offering (IPO) flubs, namely, Lyft Inc (NASDAQ:LYFT) and Uber Technologies Inc (NYSE:UBER).
The Uber IPO specifically had been hyped for so long and had reached such ridiculous valuations that it was almost certainly going to be a disappointment to some. But since the two went public, we’ve seen both ride-sharing stocks struggle.
LYFT stock is down 20% and Uber is down 10% since the two companies hit the public market, a very weak start to their journeys on public exchanges.
While both have the ability to recover, the very fact that they’ve come out of the gate so listless tells us something: the tech industry isn’t what it used to be.
Massive tech IPOs like this used to inspire awe and jolt companies for multi-year runs.
And while the weak start by Lyft and Uber is partly due to the ride-sharing business in general, this isn’t the only sub-sector that’s been hit; Snap Inc (NYSE:SNAP) is also down a horrid 30% since it went public in 2017.
Which is to say that, if the past few years are anything to go by, the shine has worn off on the tech industry to a certain degree.
This means that investors are now more wary of tech IPOs, likely feeling that the rush has already past and these companies may be too late to the party.
With that in mind, those traders looking to get in early on a high-potential growth stock will begin looking elsewhere for profits. The most obvious choice presents itself in the form of marijuana.
There will always be a certain class of investors looking for those goldmine shares, the ones that will pay off for years to come with huge growth. They tend to carry more risk and volatility, but they also have a much higher capacity for big payouts.
In my view, these bold investors are seeking newer pastures for grazing. And pastures brimming with cannabis appear to be to their liking, as evidenced by the veritable boom in marijuana stocks.
If you want to maximize profits in the stock market, there are few better ways to do that than by investing early in a boom industry.
From tech to automotive to oil, being ahead of the curb has yielded savvy investors untold profits over the years.
Now we’re entering a time when tech companies are simply getting too big to sustain such massive growth year over year. Instead, a smaller, more nimble industry will likely succeed tech as the growth industry of tomorrow.
In my view, that fits marijuana to a tee.
The sector is more establishes than it has ever been, that’s true, but there’s still a lot of opportunity for growth. And with that opportunity comes the chance for big boosts in share prices.