On New Year’s Day 2014, history was made in Colorado (1). Hundreds of people lined up in the cold outside dozens of shops across the state, each eagerly waiting to be among the first to legally purchase cannabis for recreational use in the United States.

Voters in Colorado and Washington State approved the sale and use of recreational cannabis during the November 2012 election, and the first legal cannabis sales in Colorado in January 2014 represented the opening of a new, legal market for a product that had historically been grown, processed, purchased, and consumed illegally.

The creation, and subsequent growth, of this legal market has been driven by the public’s rapidly evolving views on cannabis. In the United States, public opinion on the sale and consumption of cannabis have changed dramatically over the past decade. According to the Pew Research Center, only 10% of Americans oppose legalizing cannabis in 2022 (2), while 52% of Americans opposed legalization in 2010 (3). This dramatic shift has paralleled the legalization of recreational marijuana in 21 states and the medical use of marijuana in many more. In many states you can now even grow marijuana yourself.

While states have taken this matter into their own hands, marijuana remains illegal on the federal level. This could change soon though. In October 2022, President Biden granted pardons for anyone who was convicted of simple possession of marijuana and encouraged state governors to take the same action (4).

As more states legalize cannabis and as more businesses enter the market, the contradictions between state and federal law grow more profound. A cannabis producer, for instance, cannot legally ship their product to a neighboring state, even if it is legal in that state, because of federal interstate commerce law.

Cannabis producers are also largely excluded from utilizing formal banking services, which sets up a dilemma as described thus by the American Bankers Association: “The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action” (5).

There are signs, however, that the distance between state and federal law on cannabis’ legal status may be shrinking. In April 2022, the House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act – this bill “removes marijuana from the list of scheduled substances under the Controlled Substances Act and eliminates criminal penalties for an individual who manufactures, distributes, or possesses marijuana” in addition to authorizing several federal level bodies to conduct studies on the impact of marijuana on society (6).

For those interested in the investment potential of this rapidly-growing sector, there are a few important points to understand.

The word “cannabis” comes from the plant genus Cannabis in the family Cannabaceae, and it generally refers to the medicinal substance produced from plants in the Cannabis genus containing psychoactive chemicals (7). When ingested or smoked, cannabis can produce an altered mental and physical state, often referred to as feeling “high.”

Though cultivated as a medicinal treatment for several thousand years (8), cannabis is now being recognized by modern medical professionals for its promise in treating chronic pain, nausea, and PTSD, among many other ailments (9). It is also commonly used to help cancer patients manage their symptoms.

It is important to note that not all cannabis products contain the psychoactive chemicals that produce a high. CBD (which stands for cannabidiol) is one such product, and it has shown tremendous promise in treating a number of ailments – perhaps most significantly, childhood seizure disorders (10). Furthermore, recent research has found that in states that legalized medicinal cannabis, the number and rate of opioid prescriptions in the state decreased substantially (11).

Cannabis sales of legal recreational cannabis in the U.S. are forecast to reach $41 billion by 2025, up from $11.6 billion in 2020 (12). These projections are remarkable, and they only tell us what’s going on in the licit cannabis market.

Despite the wave of legalization sweeping the U.S., there is still a thriving black market for cannabis. In the case of California, sales of cannabis on the black market outpace legal sales. This is due to a number of factors, including cities that ban cannabis sales and the number of legal shops relative to the demand (13).

As more states move to legalize cannabis, and as public opinion continues to move in favor of broader access for medicinal purposes, there is likely to be increasing pressure on state and federal lawmakers to address the economic realities that drive black market cannabis sales. For instance, giving producers the freedom to move their products as dictated by supply and demand would decrease pressure to offload products on the black market, as well as increase overall efficiency, lowering prices and making products more competitive with those on the black market. Several states are already setting the legal groundwork for interstate cannabis imports and exports (14).

As with any economic experiment, the rise of the legal cannabis industry is going to adjust and correct itself as it matures. In that space, however, there are tremendous opportunities for the savvy investor.

The legal cannabis industry does not need to invent a new product or market that product to a new group of customers to realize enormous growth. With the right economic incentives and regulatory framework, the cannabis industry can harness the existing economic activity of the black market and legally supply customers with a product that is already quite popular and increasingly seen as an effective treatment for various ailments.

Despite the continued ambiguity at the federal level, there is still a growing market of public companies in the cannabis space that are becoming popular with investors. This budding industry has a number of companies and ETFs you can invest in:

Healy, Jack, “Up Early and in Line for a Marijuana Milestone in Colorado,” 1 January 2014, https://www.nytimes.com/2014/01/02/us/colorado-stores-throw-open-their-doors-to-pot-buyers.html

“Americans overwhelmingly say marijuana should be legal for medical or recreational use,” Pew Research Center” 22 November 2022, https://www.pewresearch.org/fact-tank/2022/11/22/americans-overwhelmingly-say-marijuana-should-be-legal-for-medical-or-recreational-use/

“Two-thirds of Americans support marijuana legalization,” Pew Research Center, 14 November 2019, https://www.pewresearch.org/fact-tank/2019/11/14/americans-support-marijuana-legalization/

“A Proclamation on Granting Pardon for the Offense of Simple Possession of Marijuana,” The White House, 6 October 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/10/06/granting-pardon-for-the-offense-of-simple-possession-of-marijuana/

“Cannabis Banking Bridging the Gap between State and Federal Law,” American Bankers Association, https://www.aba.com/advocacy/our-issues/cannabis

“H.R.3617 - Marijuana Opportunity Reinvestment and Expungement Act” Congress.gov, https://www.congress.gov/bill/117th-congress/house-bill/3617

“cannabis,” Britannica, https://www.britannica.com/plant/cannabis-plant

“History of cannabis,” The University of Sydney, https://www.sydney.edu.au/lambert/medicinal-cannabis/history-of-cannabis.html.

Grinspoon, Peter, “Medical marijuana,” Harvard Health Publishing, 10 April 2020, https://www.health.harvard.edu/blog/medical-marijuana-2018011513085.

Grinspoon, Peter, “Cannabidiol (CBD): What we know and what we don't,” Harvard Health Publishing, 24 September 2021, https://www.health.harvard.edu/blog/cannabidiol-cbd-what-we-know-and-what-we-dont-2018082414476.

Grinspoon, Peter, “Access to medical marijuana reduces opioid prescriptions,” Harvard Health Publishing, 25 June 2019, https://www.health.harvard.edu/blog/access-to-medical-marijuana-reduces-opioid-prescriptions-2018050914509.

“Sales of legal recreational cannabis in the United States from 2019 to 2025,” Statista, https://www.statista.com/statistics/933384/legal-cannabis-sales-forecast-us/

Nieves, Alexander, “California’s legal weed industry can’t compete with illicit market,” Politico, 23 October, 2021, https://www.politico.com/news/2021/10/23/california-legal-illicit-weed-market-516868

Jaeger, Kyle, “Oregon Governor Signs Bill To Allow Interstate Marijuana Imports And Exports,” Marijuana Moment, 25 June 2019, https://www.marijuanamoment.net/oregon-governor-signs-bill-to-allow-interstate-marijuana-imports-and-exports/

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How To Invest in Cannabis

The budding market for cannabis is rapidly evolving as more states legalize recreational use

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