The Newest Consumer Staple

Sean Brodrick By Sean Brodrick, Resource Strategist, The Oxford Club

Commodities

Investors are always searching for a pot of gold. Here’s one that many don’t realize exists…

It’s the newest consumer staple. It’s also one of the fastest-growing job creators in America.

Yes, I’m talking about marijuana. Don’t let this profit train leave the station without you.

How dare I call the Devil’s Weed a consumer staple? Oh, I dare! Because, according to the annual U.S. National Survey on Drug Use and Health, more than 32 million American adults already use it.

That’s way up from 21.9 million adults in 2002.

There’s growing acceptance of marijuana.

The proportion of adults who perceived great risk of harm from smoking marijuana once or twice a week dropped from 50.4% to 33.3%. To be sure, those who hate marijuana really hate it. We’ll probably see some of them in the comments on this article.

But the rest… eh. My only problem with weed is it makes people content with being bored. I would prefer to save that for folks who are already understimulated. My wife’s 98-year-old grandfather should smoke marijuana. He might be less of a grouch.

But my preferences don’t matter. And it turns out marijuana has a lot going for it as a pain medication and as a taxable commodity.

And man, does marijuana bring in a lot of taxes. Colorado, during the first fiscal year that marijuana was legal, reaped $106 million in tax revenue from recreational weed through June 2015.

The next fiscal year was even bigger – $163 million in tax revenue.

This current fiscal year looks like the best one yet.

Meanwhile, California brings in about $50 million in annual tax revenue from medical marijuana. Voters in that state voted to make marijuana fully legal. But the law hasn’t gone into effect yet. Once it does, it’s estimated the state will reap tax revenues ranging anywhere from hundreds of millions up to $1 billion a year.

There are eight states in which marijuana is or will be completely legal. There are many more that have legalized the use of medical cannabis. All told, there are 28 states and D.C. that have or will have some sort of legal marijuana.

To put it another way, about 60% of Americans live in a state where marijuana is or will be legal.

Legal cannabis sales in the U.S. jumped 17% to $5.4 billion in 2015, according to ArcView Market Research. This year, estimates of sales vary from $6.7 billion to $7.9 billion

That’s at least $6.7 billion that used to go into criminals’ pockets that now goes into the pockets of small businesses. And now, investors are starting to reach for a slice of that pie.

It’s easy to understand why. Arcview Group and New Frontier Data expect that marijuana sales will rise to $20 billion by 2020. That’s less than four years away! Looking further down the road, investment bank Cowen and Co. predicts that U.S. sales of marijuana will hit $50 billion within 10 years.

Job Growth and Plenty of It

And then there are the jobs. America’s cannabis industry employs about 150,000 people. According to analysts, that number could double or even triple in years to come.

And that makes marijuana one of the fastest-growing industries in America. Since five states voted to legalize on November 8, that’s probably creating more good jobs than Donald Trump saved at Carrier.

There’s an old saying, “There’s not a lot of money in tomatoes; there’s a lot more to be made in tomato sauce.” And that’s what many companies are doing right now with marijuana. They’re processing it into candy, oils, biscuits, cookies – anything that brings value-added profit.

Those next-gen companies are in the incubation stage right now. But they could be the profitable investments of the future.

As Volatile as a Volcano

But you can make investments in the marijuana industry today.

The big, well-known play in the marijuana market is GW Pharmaceuticals (Nasdaq: GWPH). It’s a $2.8 billion company with a marijuana-based medicine that helps with epilepsy. It lost money in the most recent quarter, but not as much as analysts feared.

GW Pharmaceuticals is in a nice uptrend – one that could take it to $151 a share, all things considered. But looking back at the previous price action, you can see this stock is as volatile as a volcano. It is not for the faint of heart.

I think there are plenty of other good picks coming down the pike. And there is a fortune to be made investing in marijuana.

Good investing,

Sean

P.S. I reveal another great company that should take off as a result of the growth in the marijuana industry in the January issue of Oxford Resource Explorer. To ensure you receive the issue, click here now.