Investors who are interested in the recent developments across the cannabis industry can consider a pure-play ETF solution for diversified exposure to this nascent global market.
In the recent webcast, Cannabis: From Exile to Essential, Vivien Azer, Managing Director, Senior Analyst: Cannabis, Beverages, & Tobacco, Cowen & Co, pointed to a rising acceptance of cannabis and the growth potential that cuts across various industries.
For instance, many are more familiar with the traditional adult use of THC-focused marijuana usage from flower, vapor, edibles, dabs, and beverages. We are seeing a shifting trend from large, illicit markets moving into legal channels. For example, Canada recently legalized cannabis use for consumption.
Meanwhile, other distinct markets that are popping include beauty and nutraceuticals that include a CBD focus for health and wellness, oil extracts, tinctures, topicals, and capsules that have a wide application of uses across international markets. OTC pain and sleep problems have found a solution from CBC/THC blends as a way to counteract occasional or persistent but not chronic ailments, along with pain management and insomnia. Additionally, in the pharmaceutical sector, CBD and THC blends have been utilized for treatment in chronic or severe conditions, and we are seeing a rise in use cases and clinical trials.
Azer argued that cannabis represents a notable consumer packaged goods opportunity that could see global sales rise to $150 billion, compared to U.S. beer at $112 billion, U.S. spirits $87 billion, and U.S. cigarettes $77 billion. Consumer incidence should drive the U.S. market opportunity, with THC projected to account for $85 billion by 2030.
Driving These Trends
The growing acceptance of cannabis will continue to drive these trends. Azer pointed out that national support has increased meaningfully, with 66% of Americans as of 2017 signaling that marijuana should be made legal, and the rising positive attitude is prevalent across political parties, age groups and regions.
Younger Americans or millennials exhibit a greater percentage of acceptance for cannabis, compared to other age groups, with those ages 18 to 34 showing a 78% support rate for the legalization of marijuana as of 2018, compared to 59% among those ages 55 and over. However, over the past month, users ages 55 and over are growing the fastest, with the highest growth rate in users among those ages 65 and over. Legalization has promoted first-time cannabis use mainly for adult or recreational use.
Cowen & Co. has also found that as cannabis use increases, alcohol use is falling, especially among younger adult consumers. There are fewer instances of alcohol binge sessions among adults who use cannabis. Surveys have shown that consumers drink less when they use marijuana. Risk perception may be part of a contributing factor as perceived risks associated with cannabis has diminished, compared to binging alcohol.
Matt Markiewicz, Managing Director, The Cannabis ETF (THCX), also pointed out that cannabis is more than just recreational use and includes various markets that could potentially grow alongside the rise of marijuana. For example, he outlined the traditional production side that provides for cultivation, production equipment, and lab tests; consumer products like flowers, derivatives, vapes and accessories; retail that covers stores, dispensaries and e-commerce; medicine including CBD concentrates and pharma; digital media through online content, networking, and online directories; and business solutions in business software and business services.
ETF investors can also tap into this diverse market through a targeted ETF, such as The Cannabis ETF (NYSEARCA: THCX), which invests at least 80% of its assets in securities of companies that derive 50% or more of their revenue from the cannabis and hemp ecosystem. THCX offers a lower correlation to other widely held ETFs and broad exposure to a less-covered industry. The fund includes exposure to top players in the game, including Cronos Group 9.0%, Aphria 7.9%, Scotts Miracle-Gro 7.7%, GW Pharmaceuticals 7.4%, and Canopy Growth 7.2%, among others.
Financial advisors who are interested in learning more about the cannabis industry can watch the webcast here on demand.