Things You Need To Know About Investing In The Cannabis Industry

Everyone is looking to profit from a cannabis investment these days, and for good reason. Cannabis legalization has spread across multiple states in recent years, providing investors with a new alternative asset class to invest in. This trend appears to be intensifying in the coming months, making reliable cannabis investment a distinct possibility.

Investing in cannabis-related companies has grown in popularity in recent years, and the market has begun to cater to investors who want a piece of the action. Investors who want to participate in the industry’s upswing now have a plethora of legal and financial options. Cannabis Stock Investments are also flourishing. Not only can shares be purchased directly on the Canadian (TSX) and American (NYSE, Nasdaq) stock exchanges, but there is also a small but growing selection of Exchange-Traded Funds.

For those seeking to avoid the turmoil of the public markets, it is also possible to invest in private companies through venture capital funds (e.g., Benchmark; Base Ventures) or crowdfunding campaigns.

Reasons for Investing in Cannabis

  • Many states have only recently legalized cannabis, so the industry is still in its infancy. This leaves plenty of room for future growth, which could result from additional legalization, possibly at the federal level, as well as broader adoption of products and uses.

  • Many people have an outdated perception of marijuana, but new products are continuously being developed. The drug’s efficacy in treating conditions such as Alzheimer’s, Crohn’s disease, and certain types of cancer is currently being investigated. CBD-related products have become increasingly popular in recent years, with consumers purchasing CBD oils, beverages, and even chewing gum.

  • As companies strive to innovate in a rapidly changing industry, investment opportunities will emerge for those willing to do some digging. While there are risks associated with rapidly growing industries, the opportunities that result can outweigh those concerns.

Risks You Should Know Of

The most significant risk for cannabis investors is the underlying business’s survival in a sector that has always been cash-constrained and subject to a very high tax rate due to Section 280E of the Internal Revenue Code. Section 280E prohibits any business, or portion of a business, engaged in the trafficking of a Schedule I or II controlled substance, such as cannabis, from claiming certain federal tax deductions or credits.

Furthermore, much of the collateral on the debt side is not available to the lender, and with real estate, there is always the question of what is the value for the “next best use” if you need to replace the tenant. Many of the expensive improvements which allow a property to operate in the cannabis space are not usable for non-cannabis tenants.

The looming question that hangs over everyone’s investment decision is when we will see federal legislation. This issue poses difficulties for the cannabis industry because conventional bank loans are still unavailable, and credit card companies will not allow dispensaries to accept credit card sales (debit card sales are sometimes acceptable) for an illegal substance.

Alternative capital is also becoming increasingly less available and has faced higher and higher rates. Despite the constricted amount of available capital, cannabis investing is still gaining popularity across all asset classes. Don’t miss out on your chance to capitalize on this. Visit our website for more information on Cannabis Real Estate Investments.