The marijuana industry has come a mighty long way in a very short amount of time. If we look back to 2005, Gallup notes that just a third of all Americans it surveyed wanted to see cannabis legalized in the United States. By 2010, even with favorability toward weed improving, not a single state had given pot the green light at the recreational level. Now, in 2019, marijuana is legal medically in 33 U.S. states, 10 of which also allow adults to consume it, and 2 out of 3 Americans are in favor of its legalization.
To our north, pot became legal for recreational use in October. Being the first industrialized country in the world to green-light cannabis, Canada has single-handedly validated the marijuana industry as a legitimate business model. Expected growth for the global pot industry could easily near 30% on a compounded annual basis through 2022 as new countries or states legalize, and already legal countries and states experience increased demand.
But even this seemingly perfect scenario isn’t without potential pitfalls. Supply shortages have constrained the Canadian cannabis industry, while a lack of financing options and a less-than-accommodating federal government in the U.S. have put a lid on the U.S. state-level sales. If the Jenga blocks came tumbling down, pure-play stocks could be crushed.
The solution? Investors should consider buying into companies that offer a reasonable amount of high-growth marijuana exposure (potentially greater than 10% of total revenue), but also have built-in safety nets that would completely buoy the business if the great cannabis experiment falls flat on its face. Right now there are three North American pot stocks that offer a varied degree of built-in safety nets.