1 surprising statistic that could help revive this struggling sector
If you’re investing for the long term, it can be beneficial to take positions in certain high-growth industries before they take off. One opportunity that investors are probably overlooking right now is cannabis. The big downside is that while cannabis products are legal in dozens of states, cannabis remains banned at the federal level.
It is unclear how long investors will have to wait until these changes and legalization take place. But there is one impressive and startling statistic that should grab the attention of lawmakers and investors alike, and it suggests that change may be coming sooner rather than later.
More common than smoking tobacco
Last month’s Gallup polling data confirmed what many people around the country already know: marijuana is growing in popularity. According to a poll, 16% of Americans admitted to smoking marijuana in the past week. In comparison, only 11% of people reported having smoked tobacco cigarettes during the same period. This is the first time Gallup data has shown that marijuana is more widely used than tobacco.
This is an important step because Gallup is a leading analytics company and its polls are known around the world and are often used to gauge trends. The data could prompt companies to lean more towards the cannabis industry, and perhaps away from tobacco.
Companies have already started to pivot
People who smoke tobacco or marijuana often seek similar relaxing experiences. Tobacco, however, has been linked to cancer and all sorts of health problems. Companies like Altria (MO -0.06%)which manufactures Marlboro cigarettes, focuses on harm reduction products to better meet customer needs.
Cannabis can also be a potential solution. In 2018, Altria invested $1.8 billion in a cannabis producer Chronos Groupi.e. a 45% stake in the company. British American Tobacco has also invested in the industry, announcing earlier this year that it now owns 19.5% of the cannabis producer Organizational chart.
And it’s not just tobacco companies that are paying more attention to cannabis. It has now been four years since the beer manufacturer Constellation Brands invested $4 billion in the giant pot canopy growth. Cannabis drinks have the potential to be an attractive alternative for the alcohol industry because they contain fewer calories and do not cause terrible hangovers.
The opportunities will only grow
According to analysts at Facts and Factors, the global legal marijuana market will be worth $97 billion by 2026, growing at a compound annual rate of 28% during that time. More and more countries are considering legalizing marijuana, with Germany potentially being among the most notable, which will open more doors for the industry.
While the Horizons Marijuana Life Sciences ETFs is down 58% over the past year and has performed much worse than S&P500 over this period (it has only decreased by 8%), this trend could change dramatically in the coming years if legalization continues to progress in the United States and around the world. Knowing that there is a growing number of users who are likely to go potty could encourage more companies to invest in the industry.
And the more attention is focused on cannabis, the more likely it is that presidential candidates will include legalization in their plans or as part of their campaign promises. While it may be disconcerting to invest in plummeting pot stocks right now, it could pay off a lot in the long run.
David Jagelsky has no position in the stocks mentioned. The Motley Fool fills positions and recommends Constellation Brands and OrganiGram Holdings. The Motley Fool recommends British American Tobacco and recommends the following options: British American Tobacco January 2024 $40 long calls and British American Tobacco January 2024 $40 short puts. The Motley Fool has a disclosure policy.