Future Uncertain, as Speculators Pour Money into Cannabis Industry
The adversarial stance of The Trump Administration’s toward cannabis has yellow lights flashing in the growing industry, but speculators’ money continues to pour in.
Marijuana focused companies raised more than $731-M between 1 January and 21 April, an almost 7X increase from the same frame last year, according to the most recent data.
The investment surge reflects optimism that President Donald Trump and USAG Jeff Sessions will not crack down on the industry, even as those concerns weigh on marijuana industry related stock prices this year. Since hitting highs in February, th Intelligence Global Cannabis Index has retraced 36%.
For the speculative cannabis participants, the industry’s growth potential our weights the political risk.
Legal demand for the drug in California is set to grow by 50% in Y 2018, when recreational use is scheduled to come online, according to the report. The report’s forecast that national demand for legalized marijuana may 4X by Y 2025.
It now appears that with each new state that legalizes cannabis, that need for capital will be in demand. It continues a substantial speculative investment opportunity for now and the future medium term.
As a result of competition for funding, seed capital is being raised in larger initial amounts and its cost is expensive
The marijuana boom has taken place in a murky policy outlook under President Trump, as many expect the US Department of Justice to increase enforcement of federal laws prohibiting recreational marijuana use, even in states where it has been legalized. AG Sessions indicated he dislikes anything to do with the centuries old medicinal and hallucinogenic plant.
“Our nation needs to say once again that using drugs is bad; it will destroy your life,” AG Sessions said in a speech to law-enforcement officials in March. “I reject the idea that we’re going to be better placed if we have more marijuana. It is not a healthy substance, particularly for young people.”
So far, AG Sessions has not done anything to brake the industry. Congress passed an amendment to the federal spending bill that prevents his department from cracking down on medical-marijuana programs that have been legalized by states. Nevertheless, President Trump signaled last month that he may not consider that ban binding.
The uncertainty has made many investors cautious and nervous about getting into the industry.
I have been following the marijuana business in the US since Y 2009, and daily I get questions from investors about the impact of comments from The Trump Administration.
As it is now I do not believe that the political threats, the banking and tax challenges will tank the industry.
Legal sales of cannabis products are expected to reach $24.1-B by Y 2025, up from $6.6-B in Y 2016. Investment will keep coming, because interstate commerce in the drug is prohibited. That means every state that legalizes it must create an infrastructure of its own.
Notably, the public support for legalization rose to 60% in Y 2016, more than 2X from 20 years ago according to Gallup’s polling data.
What I am seeing in the past year is or so is more sophisticated business people and companies entering the industry, that means more mature and experienced management teams that will ready their business models for the time that Big Pharma and Big Ag enters and consolidates the industry. moving it forward into the mainstream.
Meantime, know your risk/reward tolerance, prudence is the watchword.