There are several states where the use of marijuana – whether for medicinal or recreational purposes, has been legalized. This legalization has given birth to the term “green rush.” Green rush may describe the people moving to the states where the weeds are sold legally, with a hope to find cure with their ailments, to freely smoke weeds, or to find money-making opportunities.
The legalization has paved way to the growth of the marijuana industry. For this reason, people are “green rushing” because they see a potential profit in this industry as of now.
The Effects of Green Rush in the Marijuana Industry
The Green Rush Resulted to the Significant Growth in the Industry
According to Arcview -a research firm that observes and investigates about the cannabis industry, the sales of cannabis has increased up to 17%, which is equivalent to $5.4 billion in 2015, and reached up to 25% in 2016.
However, even though there’s a profit potential in this industry, a lot of experts say that investing in marijuana-based industry should be done in the long term. This is because the industry is new and still prone to change in regulations, especially in the federal law.
Higher Investment Risk
Even though cannabis has been approved by several states, it is still considered illegal under the federal law. For this reason, businesses in the marijuana industry cannot write-off expenses about the company’s operation and marketing. This adds to the risk of investment because the company can’t show proof of their operational costs.
Birth of Scams
Another investment resort is the penny stocks. A Penny stock is also known as the Pink sheets, where the cannabis stocks are traded over the counter. Regulations are not strictly followed in Penny stocks, which can be both an advantage and a disadvantage.
Because of the lenient implementation of regulations, in addition to the significant boom of the marijuana industry, scammers have taken this opportunity to encourage poor investors to buy inexistent or worthless shares. Furthermore, the market price of stock has become volatile.
For this reason, it is important for an investor to do his research about the company first before putting his money in. It is better to accept the possible money loss to a legitimate company, than a sure loss from scammers.
The Future of Marijuana Stock Market
Further Increase in Sales by 2020
According to Arcview, there’s an expectation for a further increase in sales by 2020. The figures are expected to increase up to $21.8 billion.
The Big Players in the Industry are Expected to be Profitable
The Green rush resulted to the establishment of several companies that produce or sell marijuana for medical or recreational purposes. The prediction favors the companies with already established names and innovations in the industry, especially the ones that are in the field of medicinal marijuana formulation.
Four of these companies are:
The company has been doing its research on medicines that are based on cannabis. They’ve been doing their own study for the creation of the drug called Epidiolex. Epidiolex is the company’s and investors’ only hope for now in order to gain profits.
Epidiolex has not been approved yet by the FDA, but the company is doing its best to adhere to the federal law. Once the manufacturing and distribution of Epidiolex have been permitted, the company’s stocks are expected to soar significantly. Epidiolex is expected to be an effective treatment for seizures caused by epilepsy.
AbbVie Inc. shows no improvement on the company revenues and net income over the last four quarters. However, the positive thing is that the company has managed to create a drug called, Marinol – a marijuana-based drug that has already been approved by the FDA.
It is proven to be effective in alleviating the side effects of chemotherapy and some symptoms of AIDS. The company will stand the chance to improve its game in the industry if it can manage to sell the drug.
The dividend yield of the company is 4.13%. The company’s dividend has grown to 12.5% over the past three years.
The company had not been doing well in the industry because of the reported negative income. However, this was an advantage in front of the investors’ eyes, because this situation brought them the opportunity to buy stocks at a cheap price of under $5 per share, and now they’re trading more than $16 per share. Furthermore, the company has a promising future because of its drug portfolio and the agreements that it has made with Japan and Korea.
Insys Therapeutics has been successful for the formulation and the approval of its drug, Syndros. Syndros is used to stimulate hunger, which is found useful for anorexic patients. There was a reported increase in the company’s revenues from 2012 to 2015, although there’s a significant drop some time in 2016. However, the company’s revenues are currently starting to rise again and are expecting to provide profits to the investors.
Stricter Implementation of the Federal Law
There are some companies in the penny market that don’t adhere to the federal laws. Atty. Jeff Sessions, a Republican senator, was extremely against the legalization of marijuana. He and the US Department of Justice are looking forward for the stricter implementation of federal laws regarding the guidelines of marijuana use and production. If the federal crackdown happens, it will affect some of the stockholders who put their money on the marijuana industry.
Possible Withdrawal of Public Support
There’s little and limited studies to prove that marijuana is truly effective in treating anorexia, Aids, and Tourette syndrome. Contrary to several studies that marijuana can impair people’s sanity and consciousness. Marijuana use has also been proven to be a cause of vehicular accidents. These circumstances can hurt the industry and investors big time.
Green rush brings advantages and disadvantages in the cannabis industry. For this reason, an investor should know how to invest his money really well, either by investing on the right companies, and by diversification.