Successful investing in novel, fast-growing industries requires a deep understanding of not just what is happening now, but what those trends mean for the future.
The cannabis industry is just one example of this. Investors can earn a significant leg up - and ultimately support a sustainable industry - simply by understanding trends impacting the maturing industry.
As one of the oldest cannabis funds - CanopyBoulder - we believe industries are made stronger by an informed investor base so we’re sharing the consumer trends, legislation and business interests most important for investors.
Here are the top trends for cannabis investors from November 2020:
Cannabis Growth Remains Strong
- Cannabis is fairing well in 2020.The industry was deemed essential in every US market. This status was also reinforced by buying trends - major US markets including California, Colorado, Oregon and Arizona experienced sales growth between 9% and 32% in Q2 2020 over Q1 2020, indicating a higher demand for cannabis amidst the pandemic and coming economic downturn.
- BDSA reports that cannabis sales will grow 30% in 2020 alone, with a 18% CAGR projected through 2025.
- Public support for cannabis is higher than ever — 68% of Americans support legalization — and this sentiment was evident in the 2020 General election
- Arizona, Montana and New Jersey passed adult-use cannabis. South Dakota passed both medical and adult-use cannabis and Mississippi passed a robust medical cannabis program. This is not surprising as states are looking for new sources of tax revenue to offset shortfalls elsewhere.
- Federal legalization efforts were stalled pending the 2020 General election. During the campaign, Biden and Harris pledged to decriminalize cannabis if elected. While this effort would be key to social justice efforts, it remains unclear what it would mean for full legalization. However, experts believe that congressional elections are more important to this effort.
- Watch our previously-recorded webinar on the Investor Hub for more detail on federal legalization efforts.
Capital Markets - U.S.
- As Alan Brochstein of 420Investor and New Cannabis Ventures writes, the market for US cannabis stocks is becoming more rational with time. Sales are rising. Strategies are consolidating. Valuations are more realistic. Leaders in the market are emerging.
- Mutli-state Operators (MSOs) are leading much of this growth with an average Q3 growth rate of 28%.
- For a robust discussion of the financial results and strategic implications of each of these leading cannabis companies Curaleaf, GTI, Cresco Labs, Trulieve and Charlotte’s Web, check out the CanopyBoulder Investor Hub.
- Akerna reports that almost half of cannabis users are over the age of 40. Under-30 users only accounted for 26.7 percent of users from the overall total polled, and those ages 30 to 40 clocked in at 29.7 percent. Collectively, the 40 to 50 age range at 19.5 percent, the 50-60 age range at 13.2 percent, and the 60-plus age range at 10.9 percent account for nearly 40 percent of all users.
- These trends suggest that there is not only room, but a need for more diverse brands targeting older consumers. So far, this has taken the form of lower-dosage non-flower products (edibles, topicals and concentrates).
Federal Taxation Trends
- Over the past few years, Colorado cannabis companies have challenged the IRS’ authority to obtain their financial records.
- Recently, The Green Solution brought such a case before the US Court of Appeals which ruled in favor of the government, setting yet another precedent. In the case of The Green Solution, the IRS will now obtain tracking details from the Marijuana Enforcement Division and Marijuana Enforcement Tracking Reporting and Compliance (METRC), the seed-to-sale tracking system used in the state.
- Ganjapreneur recently reported on the topic noting that Colorado firms Medicinal Oasis and Medicinal Wellness Center were under IRS audit for tax years 2014 through 2016. The firms had asked for immunity from federal drug prosecution before providing details about their businesses to the IRS, which was rejected. The businesses claimed the IRS was using the veil of the audit to uncover non-tax-related illegal dealings – which is prohibited under federal case law. The government said that the IRS had “nothing to uncover” as the businesses openly – and legally in the state they operate – “sell marijuana to the public.”
- We do expect more IRS engagement with the cannabis industry in the future.
For more information on Cannabis Industry Investing, check out the CanopyBoulder Investor Hub.