For the past year, the marijuana industry has been nothing short of a train wreck. Although we’re talking about a group of stocks that proved virtually unstoppable during the first quarter of 2019, most pot stocks have seen anywhere from…
50% to 95% of their value wiped away over the past 13 months.
But in spite of this weakness, there’s still plenty of hope that cannabis stocks can deliver the green. After all, tens of billions of dollars in sales are still being conducted each year in the black market. If a steady number of these consumers can be moved to legal channels over time, there’s absolutely no reason legal weed sales couldn’t hit at least $50 billion annually by 2030. For context, global pot sales totaled $10.9 billion in 2018.
The big question is, which marijuana stock(s) should be purchased to take advantage of the “green rush?”
For those of you looking to get your feet wet in the marijuana industry or perhaps angling to add to an existing cannabis portfolio, let me introduce you to the pot stock you should consider buying aggressively in May: U.S. multistate operator (MSO) Green Thumb Industries (OTC:GTBIF).
Here’s why the going has been tough for Green Thumb over the past year
Before examining the many reasons I believe Green Thumb deserves to be in investors’ portfolios, let’s begin by looking at some of the risks that could weigh on the company in the coming quarters. Remember, all stocks have risks, and Green Thumb’s 50% share-price decline on a trailing-12-month basis proves this.
Perhaps the biggest reason U.S. MSOs like Green Thumb Industries have struggled relates to the tax rates charged on legal cannabis products at the state level. Although marijuana remains a federally illicit substance, 33 states have legalized medical pot, with 11 of them also giving the green light to adult-use consumption and/or sale. Some of these recreationally legal states are absolutely taxing the daylights out of consumers and making it impossible for licensed producers to compete with illicit growers.
In California (one of 12 markets where Green Thumb operates), cannabis consumers will absorb an already high state and local tax, along with marijuana excise tax and a wholesale tax. Additionally, quality-control testing will be eventually factored into the retail price of the product. When all is said and done, consumers could be paying an extra 50% including taxes and fees, if not more.
Some states are also doing a poor job of (pardon the pun) cultivating their cannabis industries. California may be the largest state by annual weed sales, but it’s struggled to open an adequate number of dispensaries to service its enormous adult population. Meanwhile, Illinois, which began selling recreational marijuana on Jan. 1, 2020, has a cap on the number of dispensary licenses it can issue, which looks to be well short of the figure needed to stomp out illicit producers.
Even the coronavirus disease 2019 (COVID-19) could prove an impediment to MSOs. Though the coronavirus pandemic led to an initial surge in weed sales, the potential inability to visit physical stores could reduce the average ticket size or delay the launch of a new product.
Lastly, a number of U.S. marijuana companies have…
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