North American marijuana sales grew at an unprecedented rate in 2016, with industry expansion rivaling that of the dot-com boom. The green rush will only intensify over the next five years as legalization takes off in Canada and across much of the United States.

Analysis from Arcview Market Research tipped North American marijuana revenues at $6.7 billion in 2016, an increase of 30% from the previous year. Sales are expected to expand at a compound annual growth rate of 25% through 2021 to reach $20.2 billion.[1] All this, and only 26 U.S. states plus the District of Columbia have laws broadly legalizing marijuana in some capacity.

Current and projected growth rivals that of cable television in the 1990s and broadband internet in the 2000s – two industries that have nowhere near the same regulatory bottlenecks as cannabis. Applying the same formula to marijuana, we can anticipate a rapidly expanding market capable of adding tremendous economic value.

For investors, marijuana legalization is a generational investment opportunity that cuts across the medical and consumer sectors. This will create additional spin-off spending elsewhere in the economy, translating into a larger economic footprint for marijuana sales. It’ll also fill government coffers with additional revenue, something very few policymakers can resist.

Legalization: A Long Time Coming

Perhaps no other industry has languished from pent-up demand more than marijuana. “Pent-up demand” is economics phraseology that describes unusually strong appetite for a product or service. Economists often use it to describe demand for things like property and durable goods during an economic recovery following a recession or years of slow growth.

Marijuana has been outlawed at the federal level since 1937. That’s 80 years of pent-up demand. While consumers still had (illegal) access to the drug, there were few investment opportunities up until the recent growth of medical marijuana companies.

A Diverse Market

Marijuana investments aren’t just limited to retail growers, but companies developing testing technologies and innovating new growing methods. Medical marijuana and alternative forms of ingestion like concentrates and edibles are also booming. Businesses that provide specialty fertilizers to the marijuana industry, like Scotts Miracle-Grow (SMG), have also experienced a large tailwind from legalization.

Superchain clinics, consulting firms and dispensaries have also sprouted into viable investment opportunities that can still be had for dirt cheap on the Over-The-Counter markets.

California

Industry experts have cited Colorado as a glowing example of the positive impact of legalization. Legal cannabis sales in the state topped $1 billion in 2016 – just four years after legalization.[2] With four states legalizing recreational use in November, investors are salivating at the opportunity to invest in new markets.

Nowhere is the opportunity greater than in California, a state with eight times the population of Colorado. If California were its own country, it would be the world’s sixth largest economy in the world. California’s path from legalization to business generation will have a direct impact on the rest of the country. The state has already vowed to fight a recent federal crackdown on recreational use, with an unusual alliance of government officials and the cannabis industry quickly taking shape.

Other States to Watch

Investors concerned about the federal ban on cannabis should take solace in the fact that the legalization debate is heating up across the country. Overall, eight states have fully legalized recreational cannabis. Legalization is also germinating in seven others. Experts say legalization is gaining momentum in Delaware, Rhode Island, New Jersey, Vermont, Missouri, New Mexico, Kentucky and Texas. These states could be the next to head to the polls.[3]

Legalization was barely struck down in Arizona last November, with 51.3% of voters voting against Proposition 205, a statute that would have permitted recreational use.

First-Mover Advantage

The marijuana industry is booming right now, but is trading at only a fraction of its full potential. Last year’s huge sales numbers are likely a sign of things to come, as the industry benefits from strong pent-up demand and growing mainstream acceptance of cannabis use. These factors could drive the next bull market in the marijuana industry.

Marijuana investments can still be had for extremely cheap. Like any breakout industry, there are a lot of duds out there trying to capitalize on the momentum. But there’s plenty of solid picks with fantastic growth prospects, such as GW Pharmaceuticals (GWPH), Vitality Biopharma (VBIO), Canopy Growth Corp (WEED) and unconventional players like Canabo Medical (CAMDF) and Vinergy Resources (VNNYF).


 

[1] Debra Borchardt (January 3, 2017). “Marijuana Sales Totaled $6.7 Billion In 2016.” Forbes.

[2] Tom Huddleston, Jr. (December 13, 2016). “Colorado Topped $1 Billion in Legal Marijuana Sales in 2016.” Fortune.

[3] Jason Barker (January 2, 2017). “7 States To Watch In 2017 For Marijuana Legalization.” Weed News.

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