With the stock market performing well over the last 11 years, investing in emerging markets has come into focus. Whether it’s biotech, cryptocurrency or, in this case, CBD, seasoned investors are always looking for outsize returns in specific market sectors. With the U.S. cannabis market projected to reach $56 billion this year, investors are beginning to position themselves for projected robust growth in the marijuana industry. Investing a portion of a portfolio in emerging markets potentially gives investors an opportunity for market-beating returns.
Cannabidiol, known more commonly as CBD, is a naturally occurring compound found in the cannabis plant. The key distinction between CBD and THC is that CBD is non-psychoactive and does not get you high. When investing in CBD, the number one thing that should concern investors is the regulatory environment. There is yet to be clear guidance from the FDA on how CBD companies can market their products lawfully. There’s also a misconception that CBD is legal in all 50 states. However, hemp-derived CBD has some federal protections, but there’s little clarity at the state level.
In order to determine if CBD or any other investment is worth being a part of an investor’s portfolio, there are many factors to consider. An investor’s risk tolerance, time horizon, current portfolio allocation and, most importantly, their financial goals should all be considered before making any investment decision. As a financial advisor to younger clients, this demographic finds marijuana and other volatile industries appealing due to the current “trader-friendly” environment. However, any prudent investor should have a long-term time horizon that is tied to individual financial goals. As always, do your own research and speak to your financial advisor before making any new investment decisions.
There are reasons to be constructively bullish when looking at the future of the marijuana industry. Due to the current macroeconomic environment, there’s been a slowdown in sales compounded with the industry as a whole not being eligible for the federal government’s small business relief program. On the other hand, many believe that in the near future the federal government will legalize marijuana nationwide, thus leading to the robust growth many are forecasting moving forward. An example of this is that it’s estimated by 2024 that 70 percent of all CBD spending is expected to come from retail stores.
There is a compelling argument to be made for investors allocating a portion of their portfolios to this lucrative emerging market. Whether it’s big-name celebrities or Google Trends searches, the CBD market has captivated America’s attention. From its medicinal potential to retail and recreational usage, the CBD industry is ripe for explosive growth. Although the industry has had subpar performance over the last year, like all industries, it is reasonable to believe that the CBD industry will benefit from the Fed’s monetary and fiscal policies. Most of all, investors should be keeping an eye on cannabis legalization in the United States—especially as investors head to the polls later this year.
Tyrone Ross is an executive industry advisor to CanaFarma Corp.
