Forget Recreational Marijuana: 5 Reasons Medical Cannabis Is the Smarter Play

In case you haven’t noticed, the cannabis industry has been all the buzz on Wall Street for the past couple of years. And it’s not hard to understand why if you dig into the potential of legal cannabis.

According to the State of the Legal Cannabis Markets report, released by Arcview Market Research and BDS Analytics, worldwide legal weed sales in licensed stores more than tripled between 2014 and 2018 to nearly $11 billion. But over the next decade, Wall Street has chimed in and is looking for anywhere from $50 billion on the low end to as much as $200 billion on the high end (pardon the pun) in annual sales. If this most aggressive estimate is correct, the pot industry would be somewhere between…

2 and 2.5 times larger than the soda industry by this time next decade.

That’s growth Wall Street and investors would be foolish (with a small ‘f’) to ignore.

All eyes are on recreational marijuana (and that could be a mistake)

The question that remains, though, is “Where to park your money?” There are numerous variables to consider when buying cannabis stocks, including geographic focus, as well as the supply deals and partnerships that individual pot stocks have landed over the past two years.

Perhaps the one near-constant with Wall Street’s projections and various independent reports on the industry has been the expectation that recreational marijuana will dominate the marketplace. State of the Legal Cannabis Markets forecasts that worldwide recreational marijuana sales will be nearly double that of medical marijuana sales by 2024: $26.7 billion to $13.9 billion.

This thesis is backed by the idea that new markets (e.g., Mexico) will legalize adult-use cannabis in the years to come, and that in fully legalized markets we often see the medical industry cannibalized by the adult-use industry. After all, why are patients going to pay more or take the extra step of seeing a doctor to be prescribed cannabis when they could simply go to a dispensary and buy it themselves?

Don’t sleep on medical cannabis’ potential

Although all eyes appear to be on the potential of the recreational weed industry to thrive, investors would be smart not to sleep on medical marijuana. In fact, medical cannabis could turn out to be the smarter play. Keep in mind that when I say “medical cannabis,” I’m not talking about cannabinoid-based drug developers, which haven’t offered the best investment opportunity. Rather, I’m talking about consumers purchasing dried flower and alternative consumption options from licensed dispensaries.

Following are five reasons medical marijuana should remain at the top of your radar.

1. Medical pot patients use/buy more often

To begin with, medical marijuana patients tend to be much more attractive consumers for pot stocks. Based on initial surveys in Canada during the fourth quarter of 2018, medical weed patients tend to buy cannabis products more often, as well as use that product more frequently, when compared to recreational marijuana users.

2. It’s a higher-margin patient pool

More importantly, medical marijuana users generally yield much higher margins for cannabis stocks than recreational consumers. The reason for that difference is that medical marijuana patients are far more willing to purchase derivatives, such as edibles, beverages, oils, topicals, concentrates, or vapes. Compared to dried cannabis flower, which typically has low margins and runs the risk of oversupply and commoditization, derivatives yield stronger margins and have virtually no supply or pricing concerns at the moment.

3. The global market could actually be larger

Investors should also consider the fact that the global market may be more conducive to medical marijuana sales over the next decade. Even if Mexico winds up legalizing recreational marijuana in October, there would only be three adult-use legal markets worldwide. By comparison, more than 40 countries have waved the green flag on medical cannabis, to some degree. For the foreseeable future, medical cannabis is the only global opportunity in the pot industry.

4. It may speak to a younger generation of users

Medical cannabis products may also be a smart way to connect with or attract a younger generation of consumers. Young adults able to purchase cannabis products have demonstrated an affinity for high-margin derivatives and have avoided dried flower, relative to other age groups. With this younger generation expected to drive pot industry growth for decades to come, it only makes sense for marijuana stocks to focus their attention on this burgeoning class of consumers…

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