In 2021, experts predicted legal cannabis sales would grow by more than sixteen percent a year to reach more than fifty billion dollars in 2025. But cannabis sales slowed more than expected this year, and some cannabis stocks have declined more than 50%. This leaves many wondering: is now a good time to invest in cannabis? Will sales surge again in 2023, or have cannabis stocks yet to hit bottom?
Even though the cannabis sector recently set a new low, it is important to know why the recent decline in sales happened and whether or not trends will improve soon.
And if you don’t already invest in cannabis, now’s the time to think about whether to invest now or wait.
It’s almost impossible to predict the perfect time to invest in cannabis. But, to make sure you have all the information at your disposal before you make a decision, we took the time to map out what’s going on and what experts are saying about it.
Why the market declined: Some theories
Back in 2020, the cannabis sector took a hit when COVID-19 emerged. It posed a threat to people’s health and to the economy. Cannabis stocks took a hit, along with many other industries.
But the cannabis sector faced additional challenges. It had already crashed in 2019 after the government started creating regulations on vaping.
Once the COVID-19 pandemic started to end in 2021, the S&P 500 rapidly recovered from its plunge in 2020. Cannabis stocks recovered as well, but not as sharply as investors would have hoped.
One of the reasons why cannabis stocks have declined is because there has been a recent pullback in the overall market.
At the beginning of 2020, many people thought that cannabis retailers would need to close their doors because of the pandemic. Fortunately, this did not happen as broadly as many people expected.
This is because lots of states decided that medical cannabis was an “essential service.” So, toward the end of 2020, cannabis sales actually increased. People who would have otherwise been afraid to consume cannabis before going to work started to consume more of it since they were staying in, and with more time to research and experiment, many people who had never tried cannabis before began using it.
But with increased demand comes increased supply. So, as more people started using cannabis throughout the pandemic and more states legalized cannabis, cannabis prices have fallen because the supply has increased. Many states across the country started growing more of it.
And once the pandemic ended and people went back to work, demand for the plant began to fall. That’s where the crash comes in.
Looking to the future
In the future, it is likely that more cities and states will allow cannabis stores to open. There are also several states that passed marijuana legalization initiatives in the 2022 election.
Even though President Biden has not historically been the best friend of the cannabis industry, he surprised many people when he made a call for federal reform back in October of 2022.
The United States government currently designates cannabis as a Schedule 1 substance. If the DEA ends up descheduling it or designating it as a Schedule III substance, cannabis stocks are likely to rise, in part because descheduling would get rid of the onerous 280E taxation.
It is hard to predict whether any of these things will happen in the near future. What’s important to understand is that more and more United States citizens are choosing to support cannabis legalization, and because of that, reforms are possible.
So, should you invest?
A big reason why so many cannabis stocks lost value earlier in 2022 is that there was no recent movement to legalize the substance. But that was before Biden’s cannabis pardon was announced. Some experts are saying investing in discounted cannabis stocks now could lead to future profits.
Most cannabis stock prices are currently much lower than they should be. This means that it is a great time for investors to purchase them at a discount and take advantage of their long-term growth potential.
Many of these stocks are of successful businesses that still show plenty of promise. For example, stocks such as Curaleaf Holdings and Innovative Industrial Properties are widely considered some of the least risky cannabis stocks in existence.
Both of these stocks have been balancing growth with profitability in 2022.
So, if you are looking for a long-term investment, now may be a good time to look at cannabis stocks. But keep in mind that it may take a while before these stocks start to bounce back from their recent economic difficulties. In other words, these stocks may not have bottomed out yet.
Before you do choose to invest in cannabis stocks, it is a good idea to do plenty of research, same as you would with any other kind of investment.
Try to invest in companies that have experienced leadership and that operate efficiently.
If you want to hedge your bets, you should look into purchasing exchange-traded funds. These offer exposure to many different companies under a single ticker symbol. If several of these companies end up underperforming, you won’t have to worry about losing your money. This is because there will be other companies that will probably do well and cushion the blow.
Most importantly, keep in mind that the cannabis industry still faces significant hurdles. This is why many people are waiting until cannabis is legalized to invest.
There are a lot of things that will need to go right in order for the cannabis industry to recover from the slump that it has been in this past year.
Joe Biden is the first United States president who has made a statement that has been in support of cannabis reform. But it will be necessary for more political leaders to step forward and take action in order to make a significant change.
The bottom line
If you have been trying to figure out whether or not now is the right time to invest in cannabis, it is important to keep in mind that the cannabis industry faces many hurdles in the near future. It may be wise to wait to invest in cannabis when it’s legal at the federal level.
At the same time, stock prices are currently very low. If you have a long-term vision, some experts say it’s a good time to invest in stocks that will increase in value over time. Still, it’s impossible to predict with certainty when a stock has hit bottom.
If you plan to invest, be sure to do your research and watch the market closely to determine when the stocks you are considering have bottomed out. If you can afford one, a financial advisor can assist with this.
As long as you’re prepared to put money into an uncharted and unstable industry, you may reap big rewards.