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The Budding Marijuana Industry


This past weekend, our radio show fell on 4/20, and for those of you not familiar with the term, that number is commonly used by consumers of marijuana to signify using the product. The roots of the term are traced back to a San Rafael, California high school in the 1970’s.  Over the years, April 20th has morphed into a counter-culture holiday that has grown in size and scope to include festivals across the United States, and the world. It also has an activist tilt, as the day is used to push for marijuana legalization, although one has to assume that this takes place earlier in the day, as motivation might be lacking in the afternoon.

The marijuana industry in America is still in its infancy, as technically it is still illegal at the Federal level.  Obviously, the push is towards legalization on a state by state basis, but the industry is still hampered by the legal status at the federal level.  The industry would benefit if things were reversed, and the Feds made it legal, and then it was illegal on a state to state basis. There are currently 10 states where marijuana is legal for recreational use. There are an additional 23 states, including Florida, where marijuana is legal for medicinal use, but not recreational. There are only 15 states left where marijuana is still fully illegal, and the rest have seen it at least decriminalized.  

Marijuana has two main extracts, which are THC and CBD. THC is the extract that causes the feeling of getting “high”. CBD does not cause this feeling, but still has the health benefits, and therefore has grown in popularity in recent months so much that Walgreens plans on selling it in certain markets.  CBD is used for a large variety of ailments, from depression to pain relief to lowering anxiety and blood pressure.

Medical Marijuana is the next step up from CBD, and it has a variety of uses as well.  The most common is pain relief caused by different conditions including headaches, cancer, or glaucoma. Medical Marijuana is sold in stores called dispensaries, and is only available with a marijuana card prescribed by a doctor. Other uses for medical marijuana include muscle spasms, nausea, and weight loss caused by disease. Medical marijuana can be smoked, vaporized, eaten , or taken as a liquid extract.

Recreational marijuana is primarily used for pleasure, inducing the “high” feeling that is frequently referenced by pop culture. It is also used for medical issues, although a marijuana card is not needed to purchase it.  Retail stores in states that have legalized marijuana are abundant, and in many cases are serious businesses that aim to maximize the overall customer experience.  These aren’t the shady back room deals that you may or may not have experienced in your youth.  

The point of all this is that Marijuana is now a serious industry in the US, with some major money backing it and some serious retail operations and serious consumers.  The industry is in its infancy, but the competition level is already quite high (no pun intended).  However, buying publicly traded companies that are in the industry is quite risky, and there is a better way to participate.  Two ETF’s are now available, the first being MJ, which is offered by Tierra Funds and has grown to more than a billion in assets.  The other, which was just released on 4/19, trades under the ticker YOLO, and is offered by Advisorshares.  The largest holding in MJ is Aurora Cannabis, followed by GW Pharmaceuticals and Canopy Growth. Other names you may have heard of include Cronos and Tilray, both of which have been in the news lately.  As with most ETF’s this is a great, cheap way to diversify in the industry and avoid single-stock risk.