It would seem that as the marijuana industry continues to grow in profit, so would the opportunity for people to invest in the future of the plant’s success. That seems to be exactly what is happening now in Canada. The country is on the verge of legalization and it could happen as soon as 2018. With this in mind, an electronic-traded fund (ETF) has been created called the Horizons Medical Marijuana Life Sciences ETF. An ETF is a basket of assets which allows investors to diversify their holdings instead of investing in only 1 single stock. This particular ETF holds 14 marijuana related stocks that investors can buy into as the market begins to take off. 11 companies are Canadian and 3 are American.
The Future Prospects of Cannabis
While Canada seems set to have their industry take off with the introduction of legalization, America is much further ahead when it comes to profits. Having said that, the whole of North America has been booming when it comes to marijuana sales. According to the marijuana research firm ArcView, North American cannabis sales went up 34 percent last year, reaching $6.9 billion in sales, while the black market made $46.4 billion. Investment firm Cowen & Co believe that the industry will make $50 billion by 2026. That’s 23 percent growth every year for the next 10 years if the firm is correct.
Challenges Facing the Cannabis Industry
These figures definitely make it an appealing industry in which to invest although there are some important points to consider. The first, most obvious danger is that the plant remains illegal on a federal level. Marijuana’s Schedule I classification makes it listed as one of the highest risk drugs, having no medicinal value and completely illegal. This means that marijuana businesses currently have 2 major afflictions. They can’t claim business costs or deductions on what is federally considered illegal, therefore they are paying taxes based on gross sales as opposed to net sales. The industry is losing a lot of money this way and will continue to until it is legalized. The other major concern is that financial institutions will not get involved with any marijuana related business out of fear of being charged with money laundering.
Marijuana Stock Risks
These factors handicap the industry and make investing in a single marijuana stock an extremely high risk decision. Investing in the ETF would be a safer choice, although it may still be worth waiting a little longer until the plant has been legalized. While the Obama administration did not interfere at all with marijuana business across the country, the Trump administration may take a different stance. Press secretary Sean Spicer and Attorney General Jeff Sessions have both indicated that the administration would be cracking down on marijuana, in particular the recreational marijuana industry. If this happens, it would place investments in a dicey territory.
As it stands, the stocks in the ETF are made up of a diverse range of sources. From pharmaceutical and biotech companies, to Scotts Miracle-Gro who have recently gone into hydroponics, not every business is directly involved with handling marijuana. The stock that is based in marijuana is comprised of medical marijuana companies specifically. If you’re an investor, it may be worth exploring the opportunity further given the very abundant nature of the marijuana industry, keeping in mind that you may have a much more secure investment if you wait for legalization. This is only the first ETF in what is bound to be a very active and booming business in the near future.