The Motley Fool

Cannabis Bubble 2.0: 1 Move That Could Send Stocks Soaring

Image source: Getty Images

The cannabis market exploded and deflated fairly quickly when it comes to market bubbles. After climbing to all-time heights right before legalization, cannabis stocks across the board crashed. While it’s still unclear if a resurgence could come any time soon, there is one move that could give birth to another cannabis bubble.

Let’s see what’s potentially setting up this next bubble for cannabis.

American legalization

Sure, the United States hasn’t legalized cannabis yet. In fact, it could be years off before legalization occurs depending on who is voted in this November. But legalization will happen eventually. Even if it is years off, there is one area of cannabis that is legal practically everywhere across the U.S. already: cannabidiol (CBD).

CBD is the non-intoxicating substance of cannabis; it has a variety of health benefits for its users. CBD has been put in everything from drinks to sleep aids, allowing customers to use cannabis without getting high. As the stigma around cannabis lessens, CBD has grown more popular, allowing cannabis companies to expand across the U.S.

In 2018, retail sales of CBD were between $600 million and $2 billion for the year. By 2025, it’s estimated sales could explode to $16 billion, according to one study. So, clearly, there’s plenty of opportunity left for cannabis companies — and those able to exploit this explosion.

E-commerce boom

There is already an e-commerce boom going on, and there’s a reason it isn’t a bubble. E-commerce has been around for a long time, with large companies already positioning themselves at the top of the heap. So, there isn’t that risk of investing in smaller companies that could become bigger later on.

Instead, it’s the e-commerce companies currently growing and looking for new opportunities that could do well with cannabis. As cannabis use grows across the world, there will need to be methods of shipping it. What does that mean? E-commerce partnerships. Can you imagine if a company like Amazon made a partnership? That company would be unstoppable.

Is it likely?

It’s already begun. Look at Shopify for example, the company taking on the role of selling marijuana for most Canadian provinces. Shopify is an e-commerce giant that is still in growth mode and is now finding ways of shipping its own products, similarly to Amazon. It’s likely not far off that cannabis would be shipped using a company like Shopify. Now, imagine that a company like Shopify or Amazon actually creates its own cannabis supplies. It would be unstoppable.

If you’re looking to take advantage of this boom when it happens, I would go big or go home. But I will warn you: cannabis companies will mainly be unprofitable for some time. That means it could be some time before we see this huge cannabis bubble bloom again. But if you’re going to invest, I would buy Canopy Growth.

Canopy Growth has the footprint in the U.S. needed to expand and the production available to meet that demand. Of course, the pandemic threw a wrench in expansion plans. It also has a huge amount of debt the company needs to disappear. There are a lot of obstacles this company needs to face, but in the next decade, I’d say this cannabis company will be the Amazon of the cannabis world.

Aphria isn't the only cheap option out there.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe owns shares of Canopy Growth and Shopify. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Shopify, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.