Move over, crypto. Cannabis is the new cool kid in the block

Both cannabis and crypto exist in a similar gray area, are highly volatile, and thrive off media buzz and millennials’ excitement — but only one gets the green light from regulators.

Marijuana leaf with stock market candle chart as background, art generated by Midjourney

If you’re a crypto investor looking for other hot industries that could potentially be as profitable as cryptocurrencies, we suggest you take a look at our comprehensive report on the marijuana sector in the US. Cannabis bears a striking resemblance to crypto as an emerging industry that is yet to achieve full regulatory compliance, but at the same time has significantly better legal prospects in the country. Read on to learn more about the cannabis industry in the US, current developments, and the best marijuana stocks.

Cannabis and crypto: the bumpy road to mainstream adoption

In recent years, steps to decriminalize marijuana in the US and Canada helped the cannabis industry to gain momentum. The new cash crop generated a lot of headlines as a number of states legalized adult use for medical and recreational purposes — despite the federal prohibition.

In September 2018, when the crypto speculation frenzy lost its steam after an unprecedented boom in 2017, many institutional and retail investors turned to cannabis instead. Driven by a massive boom of interest, shares of some cannabis companies reached sky-high valuations, despite only a handful of them being listed on the US stock exchanges, as most marijuana stocks trade on OTC (over-the-counter) markets with little to no regulatory oversight.

Around the same time, references to cannabis in news articles have nearly doubled the amount mentioning digital assets, Bloomberg reported, hailing marijuana stocks as the new crypto. To rank-and-file investors, this was a bullish call on the new hot industry.

Ethereum price performance (orange) compared to one of the largest U.S. multistate cannabis operators, Green Thumb Industries (blue). Source: TradingView
Ethereum price performance (orange) compared to one of the largest U.S. multistate cannabis operators, Green Thumb Industries (blue). Source: TradingView

And as befits the new crypto, the cannabis market is also subject to brutal boom and bust cycles that can leave inexperienced investors at risk of big losses. All major marijuana stocks are currently in a bear market and trade at substantial discounts, displaying a striking correlation with crypto assets.

But as the crypto market braces for a prolonged turmoil caused by the recent SEC’s lawsuits against the two biggest cryptocurrency exchanges, Binance and Coinbase, the cannabis industry is hoping for a much brighter outlook — and there are some solid indicators for the next bull run being just around the corner.

More states are poised to legalize cannabis in the coming years

Cannabis has long been regarded as an illegal substance in many countries, including the US, where it has been classified under the Controlled Substances Act of 1970 as a Schedule I substance with a high potential for abuse and no accepted medical use. The criminalization of cannabis led to disproportionate incarceration of nonwhite Americans and those in lower social economic classes, while at the same time allowing a gray market for weed to flourish with little or no law enforcement intervention.

Although cannabis remains an illegal substance on a federal level, most states have legalized either or both medicinal and recreational adult use of it. As recently as a month ago, Minnesota became the 23rd state to make recreational marijuana legal, and more states are expected to follow suit in the near future.

Pot habits by age

In Florida, a proposal to legalize recreational cannabis has received enough signatures to be put on the 2024 ballot. The measure stands a good chance of passing, as 70% of respondents support the amendment, a University of North Florida Public Opinion Research Lab poll found.

Ohio may vote to legalize recreational marijuana later this year, as House Bill 168 that could make adult use legal in the state is awaiting its first committee hearing. Meanwhile, the Coalition to Regulate Marijuana Like Alcohol (CTRMLA) is gathering signatures across the state to get the proposal on the November ballot, as 60% of Ohioans approve of adult-use cannabis legalization, a 2022 poll conducted by Spectrum News/Siena College revealed.

Another state that may be on track to legalize recreational marijuana is Pennsylvania, which is practically surrounded by states with fully legal cannabis, including New York, New Jersey, Maryland, and Delaware. Pennsylvanians have been able to access medical marijuana since 2018, with 56% supporting the change to existing legislation to legalize it for recreational use as well, according to a survey from Muhlenberg College. Currently, there are three separate proposals to legalize marijuana and tax profits on its sales awaiting action by the state house.

As cannabis emerges as a multibillion-dollar industry, more states are likely to jump on the green rush in the coming years, lured by tax revenue and new jobs created in the sector.

Legalization of marijuana enjoys strong bipartisan support

According to a Pew Research Center recent study, the majority of US adults believe that marijuana should be either legal for medical and recreational use (59%), or for medical use only (30%), which is a steep rise in public support for the cause compared to 2021 survey.

Even though partisan and age differences are still evident in Americans’ views on marijuana, a very small share of respondents are completely opposed to the legalization of cannabis.

“Republicans are more wary than Democrats about legalizing marijuana for recreational use: 45% of Republicans and Republican-leaning independents favor legalizing marijuana for both medical and recreational use, while an additional 39% say it should only be legal for medical use. By comparison, 73% of Democrats and Democratic leaners say marijuana should be legal for both medical and recreational use; an additional 21% say it should be legal for medical use only,” the report reads.

Wide age differences in both parties in views of legalizing marijuana for medical and recreational use

The ideological divide can also be observed within each party, as only 37% of conservative Republicans believe marijuana should be legal for medical and recreational use, as opposed to 60% of moderate and liberal Republicans. A similar discrepancy is evident between conservative vs liberal Democrats, with 63% and 84% voicing support for fully legal cannabis, respectively.

In both parties, views on marijuana also vary by age. As expected, the oldest voters are less likely to support legalization among all age groups. Still, majorities of Democrats across all age groups support legalizing marijuana for medical and recreational use, while majorities of Republicans favor legalizing it for medical use.

Biden’s pot pardon is the first step toward federal decriminalization

The survey by Pew Research Center follows President Biden’s last year decision to pardon all prior federal offenses of simple marijuana possession. The move, which many viewed as the first step toward decriminalization of the drug, covers thousands of Americans convicted of the crime and allows them to receive a “certificate of proof” that shows they have been officially pardoned, lifting obstacles to renting a home or finding a job.

“No one should be in jail just for using or possessing marijuana,” Biden said in a statement when he announced the pardon. “Sending people to prison for possessing marijuana has upended too many lives and incarcerated people for conduct that many states no longer prohibit. Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities. And while white and Black and brown people use marijuana at similar rates, Black and brown people have been arrested, prosecuted, and convicted at disproportionate rates.”

The President also urged governors to pardon those convicted of the state marijuana offenses and called on the Secretary of Health and Human Services and the Attorney General to downgrade cannabis from a Schedule I drug. Under the current classification, marijuana is equivalent to heroin and LSD and is deemed a dangerous substance with no medical use, which has been inhibiting medical research into it for decades. If Biden’s reclassification is to pass, it will move marijuana policy into the public health realm and away from the criminal justice system, allowing law enforcement to focus on more serious crimes.

SAFE banking act will provide access to financial services for cannabis companies

Along with same-sex marriage, marijuana usage in the US is a prime example of a conflict between state and federal laws. Even though recreational and medical cannabis is legal in a number of states, it is still deemed a controlled substance on a federal level. Thus, banks and credit unions may face federal charges if they provide financial services to cannabis businesses, despite them being legally allowed to sell marijuana and even issued state licenses to do so.

So far, the only way out of this catch-22 for cannabis companies was to operate their businesses solely using cash — which would oftentimes make them a target for violent robberies — or pay steep fees to state-chartered banks due to extra compliance costs. These banking woes directly translate into lower profit margins and higher taxes, holding back the US cannabis industry.

Primary souce of cannabis for US consumers

Hopefully, recent bipartisan legislation could provide some relief to marijuana producers. In May, the Secure and Fair Enforcement (SAFE) Banking Act of 2023 was reintroduced in Congress after being passed in the House of Representatives seven times but failing to get through Senate. This time, however, the bill is expected to see a vote on the Senate floor for the first time, as majority leader Chuck Schumer, D-N.Y., expressed his support for the legislation.

“Forcing legal businesses to operate in all-cash is dangerous for our communities; it’s an open invitation to robbery, money laundering, and organized crime—and it’s way past time to fix it,” Senator Jeff Merkley, D-Ore., said in a statement. “For the first time, we have a path for SAFE Banking to move through the Senate Banking Committee and get a vote on the floor of the Senate. Let’s make 2023 the year that we get this bill signed into law so we can ensure that all legal cannabis businesses have access to the financial services they need to help keep their employees, their businesses, and their communities safe.”

Under SAFE Banking Act, federal regulators would be barred from:

  • Penalizing banks for providing services to legitimate cannabis businesses
  • Terminating banks’ federal deposit insurance because of such activities
  • Incentivizing banks to refuse or downgrade service to marijuana operators
  • ​​Taking any action on a loan to an owner or operator of a cannabis business

Even though it’s unclear whether SAFE Banking will make it through Senate this time, shifting attitudes towards marijuana use among voters and the favorable cannabis policy of the Biden administration suggest grounds for cautious optimism. With access to traditional banking, legal marijuana businesses — currently valued at $13 billion — will be able to get loans and offer a better deal to consumers, undercutting the illicit cannabis market estimated to be worth about $100 billion.

The US cannabis industry is expected to reach $40b by 2030

According to the recent Grand View Research report, the US cannabis market, valued at $13.2 billion in 2022, is expected to grow at a compound annual growth rate of 14.2% to reach $40.1 billion by 2030. The key factors driving the explosive growth of the industry are the acknowledgement of its medical value and increased research into its medicinal properties to treat various chronic conditions, including anxiety, depression, seizures, cancer, AIDS, and Alzheimer’s.

“The approval of drugs for treating various conditions is contributing to the growth. For instance, Marinol and Syndros are the two specific drugs approved by FDA intended for treating the side effects associated with chemotherapy, such as nausea and vomiting,” the report reads.

U.S Cannabis Market size.

Even though the medical segment of the cannabis market accounted for the largest revenue share of 77.0% in 2022, the recreational use of marijuana is forecasted to record the highest growth rate of 19.1% from 2023 to 2030, due to it being used by many Americans as a non-prescription treatment for various health conditions.

Cannabis stocks are loved by retail investors

For many Americans, marijuana — used recreationally or medicinally — plays a significant role in their everyday lives. This makes cannabis stocks more appealing to an average investor compared to more complex financial instruments such as derivatives, mutual funds, and indices. The simple logic behind buying shares in marijuana companies (“More people smoke pot if it’s legal — price goes up”) attracts many rank-and-file investors, including Redditors from a notorious WallStreetBets community that gained fame after sending GameStop stock soaring 400% in a week.

In hindsight, the epic short squeeze on a struggling video games retailer would have been impossible to coordinate if it was driven solely by greed. The main force behind GameStop's rebellion was deep anti-establishment frustration against “hedgies” — large hedge funds that profited off the thriving market despite the pandemic recession. Coincidentally, marijuana — historically smoked by hippies and marginalized communities — firmly holds its place as a symbol of rebellion against the authority in the collective American consciousness.

That being said, it comes as no surprise that cannabis stocks — particularly Tilray, Canopy Growth, and Aurora Cannabis — became r/WSB darlings, soaring some 50% in February 2021 in the wake of Democrats’ push for pot. Despite the sell-off, many investors are still in love with pot stocks — so it may be wise to keep an eye on investing subreddits.

The legal marijuana market is still not as consolidated as other industries

Due to its nascence, the US marijuana industry is yet to see any established players occupying a high share of the market. Unlike winner-take-all markets, where a small number of leading companies dominate the sector, the cannabis market still has lower barriers to entry for newcomer competitors.

What it also means is that there’s still a chance to be early to the industry that looks set to grow as more Americans consider open marijuana use socially acceptable. Below, you can find our picks for the top cannabis stocks that could see strong growth in the near future.

Note that all these companies (except Tilray) are currently trading on OTC markets and Canadian Securities Exchange (CSE), so make sure your broker supports OTC and foreign securities trades if you decide to invest in cannabis stocks.

Green Thumb Industries (OTCQX: GTBIF, CSE: GTII)

Green Thumb Industries is the third-largest cannabis business in the United States by revenue, with operations across 15 states that span cultivation, processing, manufacturing, and retail of marijuana products. Headquartered in Chicago, Illinois, the company stands at the forefront of the burgeoning cannabis industry, with a mission to promote well-being through the power of cannabis.

GTI's growth potential is considerable, given the continued relaxation of cannabis laws across U.S. states and a cultural shift toward acceptance of cannabis use. The company is well-positioned for future expansion, as its vertically integrated business model allows it to control every aspect of the marijuana production process from cultivation to distribution, maintaining a significant influence on both price and supply.

Even though the company’s shares can currently only be traded on OTC markets in the US, Green Thumb Industries’ CEO Ben Kovler signaled that his business is ready to get listed on NASDAQ at any moment when the regulatory climate for cannabis operators improves.

Curaleaf Holdings (OTCQX: CURLF, CSE: CURA)

Curaleaf Holdings, Inc., headquartered in Wakefield, Massachusetts, is another prominent vertically integrated cannabis company in the United States. The company's operations span 23 states, with 96 dispensaries, 23 cultivation sites, and over 30 processing sites, operating across the entire cannabis value chain — which includes cultivation, processing, branding, and retailing — for both medical and recreational cannabis products.

In Q1 2023, Curaleaf grew revenue by 14% from a year ago, aided by M&A. It remains one of the largest publicly traded cannabis stocks by market cap, and its revenue is higher than any other US cannabis company. In 2021, Curaleaf also set up its international subsidiary in an effort to penetrate the European market, threatening the dominance of its rival Tilray.

Tilray Brands (NASDAQ: TLRY, TSX: TLRY)

Tilray Brands, Inc. is a global cannabis-lifestyle and consumer packaged goods company. Headquartered in Nanaimo, Canada, Tilray has a strong international presence in the European market, boasting a market share of around 20% in Germany, more than it does in its home base. The company also has operations in the US, Australia, and Latin America.

Of particular note is that in December 2020, Tilray announced a planned merger with another major player in the cannabis industry, Aphria Inc. This merger, completed in May 2021, created the largest global cannabis company by revenue. The combined entity, retaining the Tilray name and ticker, is expected to offer significant growth potential, driven by cost synergies, an expansive global footprint, and a broad product portfolio across both medical and recreational sectors.

Cresco Labs (OTCQX: CRLBF, CSE:CL)

Based in Illinois, Cresco Labs is another vertically integrated multistate cannabis operator in the US. The company is known for its seed-to-sale business model that covers key facets of the cannabis value chain, from cultivation and processing to branded product development and retail operations. Cresco's operations span several states, and its portfolio of branded products is one of the broadest in the industry.

Cresco Labs is set to significantly expand its reach with the pending acquisition of Columbia Care, which has already received resounding approval from Columbia Care shareholders and the Supreme Court of British Columbia. As a result, Cresco Labs is expected to become the largest multistate operator based on revenue, dethroning current leader Curaleaf.

Trulieve (OTC: TCNNF, CSE: TRUL)

Trulieve Cannabis Corp. is a significant player in the cannabis industry, particularly well known for its leading presence in the Florida market. As a seed-to-sale company, Trulieve handles all aspects of the cannabis supply chain, including cultivation, processing, distribution, and retail.

Trulieve's product line is quite extensive, including dried flowers, edibles, concentrates, tinctures, capsules, and other medical cannabis products. The company is particularly known for its high-quality medical cannabis products, which are sold in its retail dispensaries and delivered to patients' homes. The company's strong operational execution, dominant market share in Florida, and strategic expansion into other key U.S. markets bode well for its future growth prospects.

Investing in the cannabis industry is not without risks

Given the nascence of the industry, the cannabis market faces a number of headwinds that cautious investors should factor into their due diligence on the sector.

Just like every other emerging industry, cannabis quickly became a hotbed for scam activity. In September 2018, the Securities and Exchange Commission even issued a statement to investors, warning them about potential market manipulation of marijuana stocks.

“Scam artists often exploit ‘hot’ industries to trick investors,” the SEC cautioned. “If you are thinking about investing in a marijuana-related company, you should beware of the risks of investment fraud and market manipulation… Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam.”

Another risk to consider is the legal risk. The entire industry’s growth is tied to legislation, so it’s not surprising that marijuana stocks are very sensitive to it and react negatively to the slightest negative developments. Right now, the market is rife with optimism about the SAFE Banking Act finally passing Senate, but there’s also a non-zero chance that it will hit a wall again. Even more, marijuana still remains illegal on the federal level, which creates more confusion between state and federal laws as legalization spreads through the states.

Finally, marijuana companies’ valuations are prone to uncertainty, which isn’t surprising as most of these companies are very young and aren’t even listed on the US stock exchanges. If their valuations end up too high and investors’ expectations fail to materialize, the bubble will inevitably burst, causing damage to the entire market.

Bottom line

Both crypto and cannabis industries are largely in the gray area when it comes to regulatory compliance, prone to highly volatile trading action, and enjoy interest from mainstream VC funds. At the same time, both are loved by retail investors due to their utility to an average person, lucrative returns, and underlying anti-establishment sentiment.

That being said, cannabis and crypto share a similar risk profile and, what follows, potential returns. However, given the recent regulatory crackdown on the biggest crypto firms, marijuana may be better posed for the next bull run.

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