It is a $100 billion, or more, market that is opening up. The demand is scalable and states in the US are riding high on the taxes they are collecting from its sales.
Earnings from its sales in these tough times is a lifesaver for governments. It is also a “hit” with the consumers at a time of weak economic prospects. The product appeals to a diverse set of age groups, making it a great opportunity to sell to consumers across demography.
The cannabis-market is now being seen as a recession-proof industry in the US. Anecdotal evidence seems to suggest that in states where cannabis and beer are legal, sales of beer with millennials are trending down and cannabis is rising. Last month, Virginia Governor signed a marijuana decriminalization bill into law. Since several states have seen its revenue potential, others could make it legal in their states too.
Little wonder, some cannabis stocks have been on fire.
Who consumes cannabis products?
Cannabis is being seen as a wellness trend that has a lot of buzz about it. It is now being positioned as natural medicine, which allows it to become mainstream. Among the lifestyle worries that it has proven to address include depression, anxiety, epilepsy, and others.
Cannabidiol (CBD), is an active ingredient in cannabis which is derived from the hemp plant. It is known to alleviate anxiety and inflammation, without the traditionally known impact of getting the consumer high. The advantage? It is not addictive like some prescriptive medicines for anxiety can be.
According to a 2018 report by the World Health Organization (WHO), there are several diseases and medical conditions that, potentially, CBD can treat. The compound is soluble and if it can be put in gummies, candies, and beverages, it can be consumed like any other product.
Tetrahydrocannabinol (THC), which is the main psychoactive compound in marijuana that gives the high sensation, is commonly used for pain relief, insomnia, anxiety, and for some other lifestyle worries. Because it is a psychoactive compound, it can cause feelings of euphoria or anxiety in some patients. It is legal in at least 20 states across the US while in nearly half the states across the country, a doctor’s prescription is required for its consumption.
Marijuana is illegal in the US but the use of CBD derived from it to treat situations like anxiety, epilepsy, and chronic pain is increasingly being accepted. Consumers are lapping up the products, now available in various forms.
A market that is emerging
Americans spent $12.4 billion on legal recreational and medical cannabis in 2019. According to a report, it is expected to grow to $16.3 billion this year.
With the market opening up, consumers are, slowly, being spoilt for choice. How could companies stay far behind? That is great news for investors too since money is now chasing the opportunities.
A few months ago, rumor mills suggested that Coca-Cola was looking to get into the CBD-based beverage market. The company denied it but the chatter keeps returning.
For beverage companies of all kinds, it is a new, emerging opportunity and they would love to ride. Brewery company Constellation Brands has increased its stake in Canadian marijuana producer Canopy Growth Corporation. Heineken has launched a new label for non-alcoholic drinks, infused with THC. Canadian company Providence Brands is developing a non-alcoholic beer with THC or CBD. The challenge for governments in the US is to shore up tax revenue in an economy that has been hit by weak consumer demand.
Cannabis is giving that comfort as people consume the products. The opportunity could help governments with revenues while pushing the industry and generating jobs.
Investors should not kill the high because they are low due to the pandemic.