For Pot Investors, The Grass Keeps Getting Greener
As jazz legend Nancy Wilson sang:
“Let’s go where the grass is greener,
for the grass is greener just beyond the hill…”
For marijuana investors, the grass (so to speak) is getting greener every day. And just beyond the hill, there’s a huge payoff.
If you think it’s too late to tap the marijuana green rush, you’re greatly mistaken. According to the latest market outlook from research firm New Frontier Data, U.S. legal sales are projected to reach at least $72 billion by 2030 with the activation of 18 new state-legal markets.
That’s the highest marijuana sales projection I’ve seen from any research group, so far. Take a look:
The mainstreaming of cannabis as a consumer industry is irrevocable, especially after the passage in the U.S. House last week of the Marijuana Opportunity Reinvestment and Expungement Act, aka MORE, which seeks to lift the federal ban on pot.
It’s uncertain whether MORE will pass in the sharply divided U.S. Senate. But the report offers this encouraging context:
“If all 18 potential states are successful in enacting legalization measures over the next eight years, it would not only add an additional $14.5 billion annually to U.S. legal retail sales by 2030, but also immeasurable political pressure for federal reform. The new markets would increase the percentage of Americans living in states with some form of legal cannabis access to 96%, and of those living in states with legal access to adult-use cannabis to 64%.”
The New Frontier report also found that usage rates, as reported by pollsters such as Gallup, have soared since 2012. If this upward trajectory is sustained, the number of U.S. consumers should grow from 47 million in 2020 to 71 million by 2030.
The U.S. market for medical marijuana also continues to expand, with the number of registered patients forecast to jump to 5.7 million in 2030, which would represent 1.6% of the adult population.
The report states:
“The seismic shift in public perception around cannabis is fueled in part by the growing exposure that Americans have through legal, regulated markets. Even in the absence of a federal framework, the resilience and growth potential of a determined industry is laying the foundation for a safe and sustainable consumer category.”
The approaching 2022 congressional midterm elections present opportunities for voters to reiterate support for new marijuana markets across a diverse range of states. There are proposed adult-use ballot initiatives in Arkansas, North Dakota, Ohio, and South Dakota. In addition, there are both adult-use and medical ballot measures proposed in Florida, Idaho, Missouri, Nebraska, and Oklahoma.
Polls show that all of these initiatives are popular with voters in the respective states.
In search of momentum…
Marijuana stocks tend to get whipsawed by the rumor mill. Tune out the white noise by the amateurs and look for seasoned advice from the pros.
The combination of hotter inflation, the Russia-Ukraine war, aggressive Federal Reserve tightening, and a lingering pandemic makes stock picking particularly treacherous right now.
I’ve always dug deeper into earnings estimates to decipher the true source of earnings growth. In particular, I screen for stocks via the time-proven yardstick of EBITDA (earnings before interest, taxes, depreciation, and amortization).
EBITDA is a good marker for the cash earnings that a company can generate. The fundamentals among many marijuana companies have improved to the point where metrics such as EBITDA can be used as a basis for comparison.
After many years of a cannabis cash crunch, free cash flow has improved throughout the industry. New Frontier reports that sales growth has left U.S. cannabis companies with a cash pile of more than $10 billion. That money is getting put to work, to expand production, hire employees, improve sales infrastructure, beef up marketing, and acquire complementary companies.
Momentum matters in marijuana investing. By applying rigorous stock-picking criteria, our team has pinpointed a marijuana stock that’s on the cusp of a major breakout. Click here for details.
John Persinos is the editorial director of Investing Daily.