How to Understand the Forces Shaping the Cannabis Market
Here, we break down a few of the forces that are impacting the emerging cannabis market.
Most investors and entrepreneurs can agree that the cannabis market is going to offer a huge amount of growth potential in the coming decade. At the same time, this emerging industry leaves many people with questions that they rightfully want answers to before investing.
That's why I want to break down a few of the forces that impact the cannabis market, things to look for, and why I, like many with their ears to the ground, believe the cannabis sector is (for the most part) a safe bet in the long run. However, this is still a belief and not financial advice.
Public sentiment and the cannabis market
For decades, Americans were told cannabis was much more dangerous than it is. (The reasons for this are complicated and worth discussing, but a bit too much to talk about today.) Furthermore, this sentiment spread from the United States, and many other nations adopted those same attitudes.
However, public sentiment about cannabis is starting to fall more in line with reality. In the United States, people are pushing for legalization, and many states are allowing the sale of not just medical cannabis but also recreational cannabis. Some politicians and communities resist this change, but it now seems inevitable the U.S. will only continue to legalize cannabis. Believe it or not, my home state of Mississippi is the 37th state to legalize a medical cannabis program without strict restrictions, opening the doors to a new wave of economic expansion.
This change isn't true only in the U.S., either. Global news is important to understanding this market, and many countries are on the same path as the United States.
Competition in the cannabis market
The U.S. cannabis industry is estimated to be worth $61 billion and rising. While the pandemic complicates the data somewhat, it is clear that American use is growing, and businesses are aiming to stand up to the demand.
What should be noted for those interested in investing in cannabis is that this is not new news. Many players, big and small, have already jumped into the industry ahead of you. California legalized cannabis around 2016 and Colorado's legalization dates back to 2012. At the same time, this doesn't mean it's too late to invest either.
Making some cannabis stock market buys, so long as you do your due diligence, offers a lot of potential. Growth seems inevitable in the sector, at least as long as there are more states to legalize and create economic hot zones. Eventually, an equilibrium may be reached, but for now, watch the news on cannabis and related industries.
If you intend to get into business in the sector yourself, it will be important to watch the competition in the location you will set up shop. One possible idea will be to watch for states close to legalization, jumping in as early adopters once they do so. The downside to such an action will be having to push a new market as part of the first wave, which can come with its own issues and restrictions.
As an example, Mississippi is gearing up for a flood of business license applications, yet the Department of Revenue and Department of Health are still editing and amending their regulations for operating within the state. Due to the fluid nature of implementing a new program, it will be important to be active within the community and find local resources to assist with navigating the system.
Cannabis tech and innovations
As the cannabis industry exits the black and grey market world, innovation and technological advancement is inevitable. We've already seen big news regarding cannabis's potential medical uses. For example, it has been shown to help with epileptic seizures and has been known for some time to help people in chronic pain.
Potential tech and innovation go beyond medical advancements, however. As cannabis "goes legit," so to speak, we will see companies racing to find ways to save on growth, transport, storage, packaging, productization and more.
This is a double-edged sword for entrepreneurs. On the one hand, these innovations can reduce costs and represent growing opportunities to profit. On the other hand, small businesses may have to face off against large corporations that can afford to innovate at scale in ways smaller stores never can.
Overall, the global cannabis market is going to see a great deal of growth as players big and small put in the R&D. Investors and more active entrepreneurs need to also watch out for the big competitors. Like in any new industry, there are going to be many players rushing into the market, who are then driven out by bigger and/or smarter players later.
While it may be tempting, when considering a given industry's potential, to focus solely on its unique factors, thinking too myopically may be a mistake. Instead, consider the economic landscape as a whole.
For example, April 2022 marked the steepest four-month drop in the S&P to start any year since 1939! As you might imagine, this affected cannabis stocks along with many others. Watching for shifts like this can offer an investor opportunities to buy in at a deal and stay. Then, you can ride not only the correction, but also the growth that we think this sector is poised for. Again, we hope this is the case, and folks say "long-term investments almost always outperform the market when investors try and time their holdings," but this isn't financial advice.
People looking to get into the industry directly have to be even more careful about catching important economic factors. After all, it may not have made sense to open a large capacity brick-and-mortar location when that market's trend is curbside and delivery post-pandemic.
The cannabis market has a great deal to offer and seems like it is poised for major growth. However, not every business will succeed, and not every opportunity related to cannabis will be made equal.
The cannabis industry has grown and continues to grow at a rapid pace. As the industry matures and legalizes more products, more opportunities will open up to those who are willing to learn and adapt. At the same time, it's important to always be aware that any given company or opportunity can fail. This is the nature of investing, and one must trust their own judgment to determine which companies are worth investing in. While many cannabis stocks and opportunities look very promising, it is essential that potential investors do their own research.
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