Stock market volatility is inevitable, but if you want to minimize your risks, take a look at the marijuana industry.
With marijuana legalization gaining ground across various states, analysts and industry professionals are expecting the cannabis industry to be resilient to recent economic downturns, thanks to its medicinal and recreational uses.
“During these times of economic collapse, you have a product that’s quasi medical and quasi recreational. It’s going to withstand the market more so than a company dependent on high-end consumer goods,” said Derek Peterson, chief executive of marijuana company Terra Tech, in an interview with MarketWatch.
Because cannabis is a fairly new market sector, analysts are looking at Drug Enforcement Administration (DEA) statistics to test its economic durability. According to DEA, federal seizures of marijuana increased to 84 percent from 2007 to 2008, and even went up another 1.5 percent in 2009 because of an increase in domestic demand. However, this is not an entirely accurate evidence because only nine states have legalized medical marijuana at that time, and recreational marijuana was considered illegal all throughout.
“We’re starting to develop data points. Prior to now, people were looking at things like DEA seizure rates to extrapolate market value,” Peterson said. “They’re probably the best data points we have on what consumption looked like.”
But according to Jeremy Carr, CEO of marijuana industry data collection company Blaze Now, his experience in Los Angeles real estate showed that clients who invested in warehouses during the recession were mostly commercial marijuana companies. That was the time when only medical marijuana has been legalized in California.
Now, 23 states have legalized medical pot, and four states plus the District of Columbia have also legalized recreational cannabis. There are more reasons why marijuana is considered an economically resilient industry.
For one, the transition from the black market to the legal market opens up a lot of opportunities for sustainable growth over the years.
“When you’re moving an established industry from the black market to the legal market, there is significant growth from migration, notwithstanding a macro contraction,” Peterson said. Also, marijuana can be likened to both alcohol and tobacco, which are naturally resistant to economic stress because people are looking for ways to relax during these trying times.
According to Alan Brochstein, founder of investor community 420 Investor, contraction of other industries is good for legalized marijuana, since the latter becomes an alternative source of tax revenue, as seen in the state of Colorado.
“When the economy is tough and the market isn’t performing well, there aren’t many options,” he said. “Growth will be at a premium.”
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