Will We See a Resurgence in Legal Recreational/Medicinal Substance Stocks

Turbulence is a hallmark of young industries, and the cannabis sector has certainly been no exception. Despite a trend that began in 2017, which saw the stock value of some of the largest legal cannabis companies rise tenfold over a single quarter, the outlook has been decidedly less rosy in recent months. Beginning in the first half of 2019 and accelerating since has been a stock market decline that has seen fluctuations in the stock prices relating to the legal cannabis industry in the United States and beyond.

These developments have led to certain punters claiming that the strong showing of the cannabis industry may be a thing of the past. However, such conclusions may be premature.

We have already seen the stock of many of the biggest pot-growing and marketing companies rally significantly in the early months of 2020, and future developments suggest that there is plenty of reason to feel optimistic about the future of this fledgeling industry. The legalization of recreational and medicinal marijuana continues apace in the US, while major strides have been made towards legalization in the UK and several other European countries.

Perhaps more significant still is the diversification of the cannabinoid industry. Last year, there were over 8000 businesses dedicated to growing purely recreational marijuana in the US alone, a number that is higher than the number of Walmart stores in the country.

With such oversaturation, a certain degree of market turmoil was inevitable. However, the cannabinoid industry is now evolving to serve a much wider market. The market for CBD oils, which are largely used for therapeutic purposes, is rising sharply. In addition, the cultivation of various terpenes that are ubiquitous to cannabis plants, many of which are used in treatments for anxiety, asthma, bacterial infections, and chronic pain, is helping to propel the market in different directions. As researchers discover new uses for the cannabis plant, businesses will rush to take advantage of them.

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Should this process of diversification continue apace, market problems caused by a glut of businesses focusing solely on recreational pot should begin to subside. Another factor is the increasing use of hemp, a strain of the cannabis Sativa plant, for a wide number of industrial, medical, therapeutic, and leisure purposes.

Companies dealing exclusively with hemp products have seen their stocks rise steadily over the course of the past year and have managed to largely avoid the troubles seen within the recreational marijuana industry. Given that many of those pot companies and growers already have the resources, legal compliance, and knowledge to pivot towards products such as hemp, it is clear that they are well-placed to adapt to changing conditions.

Around the world, 30 countries now legally produce and sell hemp on an industrial scale, while only a handful of countries have done the same for recreational marijuana. If growers can pivot to more promising markets, they will see their stock continue to recover.

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