New Cannabis Data Proves Why This Market Is Still Heading Higher

The pot industry cratered this year, but new data suggests that long-term growth is still intact. Stocks like Cronos Group (TSX:CRON)(NASDAQ:CRON) can help you capitalize.

| More on:
Upwards momentum

Image source: Getty Images

The cannabis market has gone cold — or at least the stocks have. This year, most marijuana ETFs are down more than 50%. Stocks of both big and small companies alike have cratered. Nearly every competitor has been impacted.

This type of contraction is commonplace in emerging markets. According to the Gartner hype cycle, a well-known tool for predicting the rise of high-growth industries, most innovations first experience a boom-bust period before gaining long-term traction.

The dot-com bubble is a perfect example. In the late 1990s, internet stocks were going through the roof only to crater the following year. Despite the severe contraction, however, the digital age was just getting started. Over the next two decades, stocks like Amazon.com, Inc. and Microsoft Corporation accrued trillions in value.

Judging by the fundamentals, the cannabis market is experiencing the same phenomenon. Last year, pot stocks were doubling and tripling in price on a regular basis.

This year, expectations came crashing down to reality. Still, new data suggests that the long-term prospects remain bright. If you want to capitalize on this emerging industry, there’s never been a better time.

New data is encouraging

According to CNN, “Those companies and others that tried to live up to sky-high valuations and overly optimistic projections are being greeted by stark realities: New cannabis markets take time to develop, and ongoing regulatory limbo only fuels uncertainty.” This analysis is spot-on.

After spending decades being banned by nearly every country in the world — indeed, cannabis is still federally illegal in the U.S. — cannabis has slowly been crawling out into the limelight.

If other highly-regulated industries are any indication, the path forward won’t be easy. Both alcohol and tobacco have faced their own shares of scrutiny, punishment, and prohibition over the centuries. Cannabis will be no different.

The road will be bumpy, but long term, the future is bright. Cowen Inc expects global sales to grow by over 30% per year. By 2025, worldwide sales could surpass $70 billion.

Many analysts expect the total market value to eventually hit $200 billion. That’s not surprising considering global tobacco and alcohol sales total a combined $2 trillion.

According to new research compiled by Prohibition Partners, an independent data source for the cannabis industry, legal marijuana could surpass $100 billion over the next five years. That’s several billions higher than estimates from other firms, although it’s important to note that these other firms have also been boosting their projections lately.

Prohibition Partners’ lengthy report contained other surprises, too. The firm believes Europe will eventually surpass North America as the largest source of sales, medical sales will grow faster than recreational sales, and the U.S. will legalize cannabis by 2024. That last point is a big factor in its $100 billion sales projection.

Which stocks will benefit is still uncertain. Companies like Cronos Group have tied themselves at the hip with large partners like Altria Group Inc.

Meanwhile, companies like Hexo Corp are focused on becoming full-fledged cannabis platforms. The future is still unclear, but according to Prohibition Partners, it will be flush with cannabis sales.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Microsoft. The Motley Fool recommends HEXO and HEXO and recommends the following options: long January 2021 $85 calls on Microsoft. Fool contributor Ryan Vanzo has no position in any stocks mentioned. 

More on Cannabis Stocks

Powder of Cannabis (Drugs), Analysis of Cannabis in laboratory.
Cannabis Stocks

Canopy Growth: Is There Budding Potential in the Cannabis Market?

Canopy Growth stock hit 52-week lows recently on news of needing to re-file on its BIoSteel business, so what now?

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

What’s Happening With Cannabis Stocks in May 2023?

Cannabis stocks were up this week, as the market began to turn, but how long will it last, and is…

Read more »

Cannabis smoke
Cannabis Stocks

Are Cannabis Stocks a Good Buy in May 2023?

If you're going to buy cannabis stocks, these are pretty much the only two I would consider. Even so, you…

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Aurora Cannabis: Time to Light Up Your Portfolio?

Here's my take on whether Aurora Cannabis (TSX:ACB) is worth adding to a growth portfolio right now, given its growth…

Read more »

Target. Stand out from the crowd
Tech Stocks

These Undervalued TSX Stocks Are a Bargain in May 2023

If you're willing to bet on a rebound, these are the three TSX stocks I would consider first as they…

Read more »

A cannabis plant grows.
Cannabis Stocks

Tilray Stock Is Scraping 52-Week Lows: Will it Bottom Out Soon?

Tilray (TSX:TLRY) stock remains down 53% in the last year, but when will this company hit the bottom and start…

Read more »

Medicinal research is conducted on cannabis.
Metals and Mining Stocks

2 Canadian Stocks That Are Simply Too Cheap to Avoid

These two Canadian stocks have sunk lower and lower, which is why now could be the right time for long-term…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

1 Marijuana Stock I’d Buy Over Aurora Cannabis

Explore a promising marijuana stock that outshines Aurora Cannabis. Unveil the investment opportunity to boost your cannabis portfolio.

Read more »