The North American marijuana market is expected to skyrocket from about $9.2 billion in 2017 to $47.3 billion by 2027, according to Arcview, and as a result, pot profits could soar for marijuana companies over the next decade. The investing opportunity is potentially massive, but there are big risks to investing in cannabis. Marijuana remains illegal in the U.S. at the national level, so U.S. marijuana stocks are hamstrung by laws that increase their taxes and reduce their access to banking services. Furthermore, investments in marijuana production could result in too much supply, causing a drop in marijuana prices per pound that could hurt growers in the future.
Unfortunately, there’s no way to completely eliminate the risks associated with investing in marijuana, but owning a collection of marijuana companies could insulate you against any one company disappointing. If you’re interested in diversifying your exposure to this growth industry, a marijuana exchange-traded fund (ETF) could be your best bet. Here’s what you should know about the evolving cannabis market and your ETF alternatives.
What is marijuana?
Marijuana is the dried flower of the female cannabis sativa plant. It contains over 100 chemical cannabinoids, but the most common cannabinoid is tetrahydrocannabinol (THC), a psychoactive chemical that’s found in the resin produced by the leaves and buds of the female cannabis plant.
The second most common cannabinoid in cannabidiol (CBD), a nonpsychoactive chemical that helps counteract the high produced by THC.
When people use marijuana, these cannabinoids interact with receptors in our body’s natural endocannabinoid system. There are two types of cannabinoid receptors: CB1 receptors that are located primarily in the brain and CB2 receptors that are mostly found elsewhere. THC’s interaction with CB1 receptors is what’s responsible for marijuana’s psychoactive effect, while the interaction of marijuana’s other cannabinoids with CB2 receptors is believed to contribute to many of marijuana’s medicinal benefits, including its ability to help regulate seizures in epilepsy.
Impressions from rope made from hemp, a low-THC variety of cannabis sativa, have been observed in pottery dating back to 5,000 BC and cannabis seeds have been found in the graves of people buried in China and Siberia dating back to 500 B.C.