Marijuana-related stocks are gaining after significant declines in previous years. This is linked to announcements of potential regulatory liberalization in the USA. In Europe, they are being favored by the decriminalization introduced by Germany on April 1 this year. By 2028, the global market is expected to grow to over $100 billion.
This year, cannabis industry stocks are performing much better than the broader market. The ETF Amplify Alternative Harvest ETF (MJ), which focuses on global companies in this industry, has risen 36% since the beginning of the year. In comparison, the US S&P 500 index has increased by nearly 12% during the same period. However, these results cannot be considered in isolation from the previous few years of declines, as this fund has fallen by a total of 79% over the past three years. This was due to unmet expectations of federal decriminalization of recreational marijuana, which emerged at the beginning of Joe Biden’s term.
Now, however, the topic has resurfaced, and after 50 years, marijuana is set to be removed from the list of strong psychoactive substances. President Biden’s administration plans to reclassify it as a medical substance, similar to painkillers. Another significant event affecting the industry is the decriminalization of marijuana introduced on April 1 in Germany. This, however, is primarily a psychological and political effect that may influence decriminalization decisions in other countries.
The impact on current company results is limited because Germany, fearing the reaction of the European Union, did not decide to introduce the sale of recreational marijuana in licensed stores or pharmacies. Thus, in Germany, one can possess marijuana (up to 25g or 50g at home), grow it independently, but commercial purchase is difficult or impossible. The creation of clubs (up to 500 members) that can grow cannabis for their members has also been allowed. These measures stopped halfway compared to the original pre-election promises of the German coalition parties – SPD, Greens, and FDP. Earlier analyses by the University of Dusseldorf indicated that full liberalization could generate additional revenues of €4.7 billion for the German budget and create 27,000 new jobs.
The global cannabis market is estimated to be worth about $65 billion this year. It is expected to grow at an average of 14% annually over the next few years, reaching a value of $102.9 billion by 2028. Medical marijuana is currently legal in over 50 countries and 38 US states. Recreational use is legal in nine countries, including Germany, Canada, Mexico, and South Africa, as well as in 24 US states.
In comparison, the total market capitalization of cannabis companies is far behind alcohol and tobacco – the two most popular legal substances. The market capitalization of the ten largest alcohol and tobacco companies is $970 billion and $450 billion, respectively, which is many times more than the $20 billion market capitalization of the cannabis industry. According to statistics, 16% of Americans currently admit to using marijuana, while 11% smoke cigarettes and 45% drink alcohol.
The largest company in the industry, Curaleaf, is increasing sales by 30% annually, with a low gross margin of 15%. By comparison, tobacco giant Philip Morris is increasing sales by only 6% but has a margin of 66%. This shows the significant potential of cannabis products.
Paweł Majtkowski, eToro Analyst in Poland
