Playbook #073: Cannabis

🖼️ The Big Picture

Cannabis is considered a semi-controversial investment. Why?

Well, even though 19 states in the U.S. have legalized the recreational use of marijuana, it is still classified at the federal level as a Schedule I drug under the Controlled Substances Act, meaning that distributing and possessing marijuana violates federal drug laws.

But President Biden’s proclamation on Oct. 7, 2022, included a request for the secretary of health and human services and the attorney general “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”

That means cannabis is still very much like an emerging market: high-risk, high-growth, and still working through regulatory issues. Long term, it may be one of the most exciting opportunities available, as the global market size is predicted to grow at a 7x multiple by 2030.

However, make no mistake, there are also significant challenges for investors along the way.

All transactions have to be done in cash because of the federal laws, and major banks don't like to provide services to cannabis-based businesses. There's still competition from illegal dealers. Regulation remains a problem with more than half the states not permitting recreational use. And, after the initial explosion of products, there’s been somewhat of a “race to the bottom” in terms of pricing — where new competitors pop up and try to grab market share with lower prices.

If you’re not familiar with the industry, there are essentially 2 categories: Recreational (for personal enjoyment) and Medical (which has been legalized for longer and is more widely available.)

In addition to traditional marijuana, you may have seen the rise of a new category of product: CBD (cannabidiol). It comes from the cannabis plant, but doesn’t contain THC (what gets you “high”) so it’s completely legal and, unlike products that include THC, can be shipped across the country. CBD is believed to have therapeutic properties that can work for some conditions, and has been used in everything from relaxing drops for your dog to massage oil.

If cannabis-based products align with your values and you have experience, skill, or enjoy playing in up-and-coming, disruptive markets like this, then it may be a fit for your Investor DNA.

Even if this doesn’t resonate with you, however, we encourage you to go through the issue in full and see what you can learn about your own Investor DNA along the way. From an opportunity perspective, it’s similar to other exciting new areas like medicinal psychedelics (which Kevin O’Leary from Shark Tank is invested in.)

Plus, lessons learned can be applied to other situations where a new market is created and has to deal with everything from competition to regulation. For example, what parallels are there between the creation of the marijuana and cryptocurrency industries?

🔢 By The Numbers

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