Two Reasons Why Marijuana Stocks Have Only Just Begun to Reach Their Potential

Cannabis-Infused Beverages Will Storm the Market
iStock.com/NataGolubnycha

Marijuana Stocks Set for Growth

When it comes to the marijuana industry, many people are myopic. By that I mean that people tend to miss the forest for the trees, seeing only segments of the market instead of the powerhouse that is the whole.

Two oft-overlooked segments of the market—cannabis-infused beverages and medical marijuana—are huge areas of the pot sector that could not only spark growth in the next few years, but could see marijuana stocks gaining for decades to come.

The breakdown goes like this: many investors and analysts underestimate the marijuana market because they judge it based on how they think many people  consume marijuana.

As such, they take the accumulated data on the black market and legal markets like Canada and then make projections. It’s not unsound, but it is missing some key parts of the market.

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With that, let’s explore two such key segments.

Medical Marijuana Still Growing

One major flaw in a lot of marijuana market estimates has to do with the medical marijuana market.

You see, in many areas where medical marijuana is legal but recreational pot is prohibited, there has long been an unspoken rule that doctors will likely prescribe the drug fairly easily, allowing many people to consume it under the guise of medical purposes, when it’s, in fact, purely recreational.

The thinking goes, then, that when recreational marijuana is legalized, the medical marijuana market will suffer. And that’s a fair and true statement. But what’s overlooked is the potential of medical marijuana in a post-legalization world.

Consider “Epidiolex,” the first Food and Drug Administration-approved cannabis-derived drug in the United States. Used to treat rare forms of epilepsy, this drug is but the first in a potentially large and highly lucrative assortment of medicinal marijuana products.

Consider that, according to the National Survey of Drug Use and Health, marijuana use among seniors rose tenfold in the U.S. from 2007 to 2017. More baby boomers were using it to treat health problems such as pain, depression, or anxiety.

Among Americans aged 60 to 64, 9.4% reported in 2017 that they had consumed cannabis in the past year, compared to 1.9% in 2007. Also in 2017, 3.7% of Americans aged 65 and older reported that they had used the substance in the past year, compared to 0.3% in 2007. (Source: “Marijuana use among baby boomers rose tenfold over decade as seniors seek out pot for medical treatment,” CNBC, June 7, 2019.)

These massive jumps in the usage rate among baby boomers speaks to an exciting opportunity for producers of marijuana products: treating a number of ailments that plague millions of consumers.

Attention deficit hyperactivity disorder (ADHD), post-traumatic stress disorder (PTSD), cancer, and anxiety disorders are just some of the many medical conditions that marijuana has showed promise in being able to treat.

And one of the biggest opportunities for medical marijuana stocks comes by way of pain relief.

With the opioid epidemic still wreaking havoc across the U.S. and many parts of the world, there is a severe and desperate need for an alternative pain reliever. Marijuana could very well serve that role, providing pain relief while being far less addictive, and with users having virtually no risk of overdosing.

In this case, marijuana would largely be seen as a godsend, a product that not only helps treat an ailment but will literally save lives by reducing the number of opioids on the streets.

It’s a pretty compelling argument, and one that could see marijuana quickly skyrocket into the No. 1 pain reliever of choice if countries relax their rules against medical cannabis.

Not to mention that many older Americans would become new marijuana users as a result, allowing pot companies access to a demographic that otherwise likely would have forgone weed.

The study mentioned above predicts as much, with Dr. Hillary Lum saying that as more U.S. states legalize marijuana, more older Americans will begin trying the drug. (Source: Ibid.)

Cannabis-Infused Beverages Will Storm the Market

Another huge area that is being overlooked is the possibility for marijuana companies to tap into the alcohol industry via cannabis-infused beverages.

Alcohol sales have been in decline in recent years, and as a result we’ve seen alcohol companies turn to marijuana to try to reinvigorate their consumer base and win people back. (Source: “Joint effort? Breweries add cannabis to their beer to fight rise in popularity of legal marijuana,NBC News, June 6, 2019.)

Many companies have begun exploring cannabis-infused beverages, but one key thing that marijuana investors overlook is just how massive this could be for pot stocks.

Let’s say that marijuana beer accounts for 10% of total beer sales in the near future. That would still be a huge boon for marijuana producers and it would dramatically expand the scope of the marijuana trade.

If the legal marijuana industry is able to capture an even larger share of the market of alcohol users, we could theoretically see the total marijuana market increase by billions of dollars.

Such a massive boon would make many of the current pot stock valuations far below their true earnings potential.

While this is, admittedly, optimistic thinking (after all, it’s unlikely that most alcohol drinkers will switch to cannabis-infused beverages), if even a small portion of alcohol consumers embrace cannabis-infused drinks, that would be a huge gain for pot stocks.

For years to come, we’re likely going to see marijuana eat away at the alcohol industry and insert itself more and more into that sector. As such, with global consumption of alcohol being as high as it is, we could see decades of earnings growth for marijuana companies, and therefore decades of price increases for pot stocks.

Analyst Take

Don’t be fooled: the marijuana industry is just getting started.

There is so much potential on the horizon for pot stocks that even one major breakthrough could send share prices soaring. The two scenarios outlined above are just some of the more likely ones, but overall, the legal marijuana sector has a long runway ahead of it to see gains for many years.