A sceptic’s guide to the cannabis boom, part II

Yesterday we took a look at the growth potential of the cannabis market over the next few years.

Today, we’re asking, will all that growth be sustainable, or are we looking at another bubble?

And I guess the best way to answer that is to work out if cannabis will turn out to be the latest fad, or something much more sustainable.

Could cannabis just be a fad?

Cannabis has all the hallmarks of a fad.

It is tapping into the current healthy zeitgeist and is being marketed as an alternative to current, more damaging medicines.

The thing is, the evidence shows it’s actually working.

As the Independent reports:

Two separate peer-reviewed studies in the journal JAMA Internal Medicine found significant drops in opioid prescribing in US states that had relaxed their cannabis laws.

Here’s what the first study showed:

In the first study, researchers at the University of Georgia, Athens, looked at Medicare Part D prescriptions for people over the age of 65 between 2010 and 2015.

It found that prescriptions for all opioids decreased by 2.11 million daily doses per year from an average of 23.08 million daily doses per year when a state instituted any medical cannabis law.

When a state opened marijuana dispensaries, opioid prescriptions dropped by 3.7 million daily doses per year.

And here’s what the second one found:

The second study, detailed in the article Association of Medical and Adult-Use Marijuana Laws With Opioid Prescribing for Medicaid Enrollees, looked at Medicaid prescription data from 2011 to 2016.

It found that allowing medical marijuana use was associated with 5.88 per cent drops in opioid prescribing rates.

Allowing adult recreational use of cannabis was associated with greater reductions.  Annual opioid prescribing rates fell by 6.38 per cent.

Reducing opioid use is a major win. In the US “the opioid crisis”, as it’s known, has claimed so many lives it’s actually brought down the country’s average life expectancy.

Until now there haven’t been many good medicines for treating chronic pain. It basically comes down to opioids or synthetic opioids. Both of which are highly addictive and both of which claim many lives.

Cannabis is a proven non-addictive solution for chronic pain sufferers. This use alone could keep up demand for cannabis indefinitely.

So while cannabis supplements for the health-conscious (which we talked about yesterday) may end up being just another fad, its real, medical uses will not be.

And that brings us to the third prong of cannabis’ appeal: getting high.

All the fun with none of the guilt?

There is another reason big companies are getting excited about cannabis. It offers people a relatively safe way of “getting high”.

As alcohol and tobacco use among the young is in steep decline, cannabis offers companies in these sectors a whole new revenue stream.

On Wednesday, BBC News reported the following:

Young people are turning their backs on alcohol, a new study has suggested.

Researchers looked at official health data from the last decade and found almost a third of 16 to 24-year-olds in 2015 said they didn’t drink, compared with around one in five in 2005.

Non-drinking was found across a broad range of groups, suggesting it was becoming “more mainstream”.

Binge drinking rates also decreased – from 27% in 2005 to 18% in 2015, based on Health Survey for England figures.

Almost 10,000 people were questioned, with the results demonstrating a clear decline in consumption of alcohol among young adults.

Smoking has been uncool for some time. Now alcohol is falling to the same fate. As I said yesterday, the young are increasingly health conscious. They are rebelling against their binge-drinking parents by going teetotal.

As I have written before, drinks companies and big tobacco are now eyeing up cannabis as an alternative product.

If they can get the marketing right, cannabis drinks and edibles will be seen as a “healthy” alternative to smoking tobacco and drinking alcohol.

No lung cancer, liver disease or weight gain to worry about, but still a great way to relax and unwind.

Like investing in alcohol the year prohibition ended?

Then finally, we have the people who already smoke cannabis, but would prefer to buy it legally and source it from reputable growers.

On top of the supplemental, medical and “healthy high” markets, we have the illegal market.

As I said yesterday, this market is worth over $46 billion.

Much, if not all, of this market will eventually be taken over by legal growers.

I’ve seen a number of pieces stating this will not happen.

They claim illegal varieties will still be cheaper – as they won’t be taxed – and so people will never switch to buying legally.

I find this argument weak.

Right now, many varieties of cannabis you can buy illegally are supremely strong. The strains are “very different from the cannabis of our day”, former hippies like to say.

And it’s true. Prohibition leads to stronger and stronger substances. During the days of alcohol prohibition, people weren’t making wine of beer, they were brewing moonshine.

This way they can get more profit for less time, energy, space and outlay.

When alcohol prohibition ended, did everyone shun the big brands and stick with their moonshine? No. Of course not.

No one really wanted to drink moonshine, but that was the only option they had at the time.

The same is true of the illegal cannabis market. People will prefer to know exactly what they are buying, exactly how strong it is and exactly how it was grown.

Just like you would never dream of buying moonshine from some back alley today, given the choice the vast majority of cannabis users will opt for legal, professional suppliers.

In conclusion

Given all of the above, I would have to conclude that cannabis is far from a fad.

It has proven high-demand uses in medicine, healthcare, sports and recreation. Each of those markets is huge. And cannabis will very likely become a major player in all of them.

Given all this, the $146.4 billion market prediction for legal cannabis I mentioned yesterday seems entirely probable, and very likely to come true.

The question now is, what’s the best way to invest in this new mega-market?

For that, I’m turning to my colleague Eoin Treacy.

He has identified two small cannabis stocks he believes will go on to dominate the market in the coming years.

Not only that, but he believes Canada’s cannabis legalisation on 17 October will signal the start of their price explosion.

Why does he think that, and how can you invest in them for yourself? It’s all revealed in his “820% pot stock jackpot” report, which you can read here.

If you’re interested in investing in the legal cannabis industry, Eoin’s plays are the way to do it.

Until next time,

Harry Hamburg
Editor, Exponential Investor 

PS If you want to get five days’ free access to Eoin Treacy’s “insider’s alert”, you need to get your name down here by Monday. Eoin is offering all Exponential Investor readers a full five days’ access to his “insider’s alert” videos. To find out more and get your name down, click here now.

Category: Commodities

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2019 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑