Understanding Medical vs. Recreational Cannabis Investing

by | Aug 17, 2021

Explore the fundamental differences between medical vs. recreational/adult-use cannabis for smart investing.

Market Overview

The legal cannabis industry is booming. It’s projected that the American cannabis market size will be an astounding $92 billion[1] in 2021.

The market isn’t showing signs of slowing down[2] anytime soon:

  • Recreational/adult-use cannabis is being legalized in more and more states across America.
  • Both demand and customer base are higher than ever.
  • California, the world’s largest legal cannabis market, is estimated to be $7.2 billion by 2024. That is 40% larger than Canada and 253% larger than the next-largest state, Colorado[3].

For investors, market size matters, but so does volatility.

The majority of investment dollars has gone into the recreational cannabis markets. But recreational cannabis markets have shown extreme volatility.

Publicly traded cannabis stock values have fluctuated greatly:

  • The Global Cannabis Stock Index shows extreme volatility whether you’re viewing returns over 5 days, 6 months, or 5 years.
  • Recreational cannabis companies have already lost billions of dollars in the race for market share.
  • Shockingly in Canada, over 5,000 tons of cannabis flowers have been destroyed due to oversupply.

Another factor is also important to note.

Many states have only medical cannabis markets. In these states, it is common for large cannabis companies to say they are providing medical cannabis. But they are medical cannabis providers in name only.

For example, Florida does not have a legal recreational cannabis market. So large operators call themselves medical cannabis companies.

But a closer look reveals they pay little attention to medical cannabis patients.

This leaves a massive opportunity for cannabis companies that actually serve medicinal cannabis needs.

Some companies genuinely operate with a mission to serve medical cannabis patients in need. These companies have the potential for long-term growth and to gain significant market share.

A savvy investor can see the difference between actual medical cannabis companies and those just giving lip service. These investors might be pleasantly surprised by the upside potential for those actual medical cannabis providers.

People are in hot pursuit of recreational marijuana stocks as well as medical marijuana stocks. So it’s no surprise that marijuana investments in private and publicly traded companies[4] are booming.

With the marijuana business in the United States[5] and Canada[6] expanding rapidly, the potential for financial growth is enticing millions of people to begin learning about marijuana investing.

With people getting rich and poor off meme stocks[7] like Gamestop and cryptocurrency like Dogecoin, everyone wants to get a piece of the pie. So right now, all eyes are on the cannabis market.

People want to know how to get into cannabis investing and how to make the best investments possible.

With so much interest in cannabis investing, we’d like to explore the fundamental differences[8] between medical marijuana vs. recreational marijuana.

This way, smart investors can find the information they need to make the most educated decisions possible.

  • Before putting money on the table, it’s important to understand the industry.
  • Before you can make the right investment choices, you’ve got to understand both the medical and recreational marijuana industries fully.

Here are some key factors you should look for when considering investing in cannabis.

Understanding Cannabis Companies

First, marijuana companies fall under three broad umbrellas[9]:

  • Producers, Processors & Retailers: These are companies that grow, cultivate, and process the plant. These companies then manufacture and package products. Finally, they deal directly with consumers in dispensaries.
  • Ancillary providers: These businesses provide products or services to cannabis companies. This can include packaging, lighting, hydroponic systems, etc.
  • Biotechs: These are medical companies that focus on developing cannabis-related drugs.

Understanding Medical vs. Recreational Marijuana

Then, there are two different industries: medical marijuana and recreational marijuana[10].

Example of medical marijuana product in jar.

Medical Marijuana

Although marijuana decriminalization began in the 1970s, it wasn’t until 1996 that California became the first state to legalize cannabis for medical use[11].

Canada followed not long after, legalizing medical marijuana in 2001.

There have been many studies done that show the benefits of medical marijuana[12].

Marijuana Cannabinoids (such as THC, THCA, THCV, CBD, CBG, and CBN) have proven to help provide relief to patients with symptoms related to:

  • Chemotherapy
  • Nausea
  • Chronic Pain
  • Multiple-sclerosis (MS)
  • Eating disorders such as anorexia nervosa and bulimia
  • Epilepsy and other seizure-related illnesses
  • Tourette’s Syndrome
  • Crohn’s Disease
  • Glaucoma
  • Anxiety
  • Depression
  • Insomnia and other sleep disorders
  • Addiction
  • PTSD
  • Schizophrenia and psychosis
  • Traumatic brain injury, memory loss, and cognitive impairment
  • Huntington’s Disease
  • Parkinson’s Disease

Studies on the effects of medical marijuana are still ongoing.

Currently, there is no proof that cannabis cures any condition. However, overwhelming evidence indicates that cannabis relieves symptoms associated with chronic illnesses, diseases, and disorders.

Many people seek to invest in medical weed because it provides a natural alternative to manufactured medicine.

Natural alternatives are becoming popular because people want to avoid the laundry list of adverse side effects linked to traditional treatments. These side effects sometimes include death[13].

Recreational (Adult-Use) Marijuana

Legal recreational marijuana in America is new. It’s a younger industry than medical marijuana.

It wasn’t until 2012 that both Colorado and Washington state made history by legalizing recreational marijuana in the United States.

Canada took a bit longer. It legalized recreational cannabis in two waves:

  • The first wave of legalization began in 2018 with flowers, oils, and seeds.
  • The second wave came soon after in 2019 with edibles, vapes, and concentrates.

Since then, the industry has exploded.

By 2019, Colorado had reached the billion-dollar [14] marijuana revenue milestone. It took them seven years to achieve their first billion. But it only took them one more year to double that[15].

Other states have noticed the staggering financial gains and have seemed to follow a domino effect of legalization. Five more states[16] announced plans for legalization in 2020 alone:

  • Arizona
  • Florida
  • New Jersey
  • New Mexico
  • New York

Unfortunately, it’s taken much longer for other states to legalize cannabis recreationally because of long-time negative public views.

The infamous “war on drugs” has sparked moral and ethical debates that have followed marijuana for years. These debates have unjustly vilified the plant. They’ve also created ill-informed stereotypes that incorrectly perpetuate a negative stigma.

Thankfully, the public view surrounding recreational cannabis is drastically shifting.

Studies show that American support of cannabis legalization [17] is at an all-time high.

Why?

Because people are now more educated about the actual benefits of cannabis, so naturally, the narrative is changing.

The introduction of CBD[18] to the mainstream market was a huge help. It shifted public perception.

This shift uncovered the many use cases for cannabis. In other words, people began to see that it wasn’t just for getting high.

However, while medical research shows many positive effects[19] associated with marijuana use, many people just want to get high.

In terms of recreational drugs, cannabis is one of the safest ones (if not the safest one) there is:

  • Alcohol, legal in all 50 states, causes about 30,000 deaths[20] in America every year.
  • Cannabis, on the other hand, has never been linked to a single overdose or death.

The evidence is overwhelming as to which is safer. However, society traditionally gives alcohol a stamp of approval but condemns cannabis.

However, as more people begin to understand how safe recreational marijuana is[21], we’re sure to see the industry expand even more.

Federal and State Marijuana Laws text on page.

Consider: Cannabis and The Law

A certain level of the legal grey area remains around both medical and recreational marijuana. As such, we must have a basic understanding of the history of the legality of cannabis in America.

The history of cannabis itself goes back thousands of years. But the last century has been especially controversial in the U.S.

  • Marijuana was outlawed in America during the 1930s when Congress passed the Marijuana Tax Act[22].
  • In the 1970s, strong public pushback against criminalization first began.
  • In 1971 President Richard Nixon declared war on drugs[23] and labeled cannabis a Schedule 1 drug. This put cannabis on the same legal level as drugs like heroin, meth, and LSD.
  • Fast forward to 2021, and now people are making millions of dollars–legally–from the marijuana industry.

At the time of this writing:

  • Medical marijuana is legal in almost all 50 states[24] (the only outliers being Idaho and Nebraska).
  • Recreational marijuana is fully legal in 15 states and has undergone at least decriminalization in 31 states

Since the debate continues over the ethics of recreational marijuana, there is always a chance that the laws will change[25].

Investors must consider how specific laws and potential changes to those laws will impact business when investing in recreational cannabis stocks or medical cannabis stocks.

Understanding the legality of your investment always strengthens your financial decisions.

Consider: Stability, Profitability, and Potential for Growth

Any business needs some time before it turns a profit. In many cases, some companies never turn a profit.

But the medical marijuana industry has been around for a while. It’s had enough time to become well-established and profitable[26].

During the pandemic, most states that have legalized medical cannabis have deemed it an “essential” business. With the “essential” label,  businesses have been able to avoid the devastating financial impact that pounded many recreational dispensaries[27].

Cannabis Investments in a Post Pandemic World

Living in a post-pandemic world has many people considering how certain necessary businesses genuinely are.

Why?

Because that kind of necessity will impact future investments:

  • The essential nature of medical cannabis stocks makes medical marijuana investments a much safer bet than investments in the recreational sector.
  • However, many already established medical marijuana companies will pivot into the recreational space once recreational use is more widely legalized.

Stability in an Emerging Market

Many recreational brands are either brand new or in the beginning stages of development.

As a result, many of them are not yet profitable.

But states with established legal recreational markets are proving that the recreational cannabis sector has the potential for massive growth:

  • In 2020 alone, California sales exceeded $4.4 billion in marijuana revenue.
  • Washington State brought in almost $2 billion.

Legalization is sweeping across the country.

The potential for growth and profitability[28] in recreational cannabis is enormous, as you know.

However, as the saying goes, no pain – no gain. So recreational cannabis is naturally a high-risk, high-reward investment.

GET THE FACTS

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Consider: Taxes, Funding, and Government Influence

Any investment decision has tax implications[29].

Investing in the cannabis sector is no different.

  • First, it’s essential to understand that, generally, recreational marijuana is taxed at a much higher rate than medical marijuana.
  • Next, consider tax revenue. Many states see the staggering revenue[30] driven by the marijuana industry and want to get in on the boom.

Because the industry is heavily taxed, it pumps a lot of money into local economies[31].

Tax laws differ by state[32]:

  • Most legal states where cannabis is legal measure by the ounce.
  • New York State will be the first state to implement a tax based on THC concentration.

Paying attention to the tax laws surrounding your investment is important. It will help you determine which businesses are apt to be backed by the government and receive better funding.

The more taxes paid to the government, the more security the industry has[33].

Consider: Research News and Big Business Moves

When investing in any industry, it’s imperative to pay close attention to the current market landscape.

If you plan on trading publicly held stocks, watch for big company news like:

  • Mergers
  • Acquisitions
  • New partnerships

Beware that investment bankers know how to manipulate the market and influence the pricing of publicly-traded cannabis stocks. This can lead to overvaluation and volatile price swings.

In other words, be prepared for day trading similar to penny stocks and cryptocurrency.

In addition to public stocks, there are private opportunities to consider. For example, privately-held licensed companies and equity funds sell shares to investors in already battle-tested companies.

These are ground-floor investments with actual companies that have proven that they are here to stay.

Within the next several years, the licensees that continue to persevere will come out as winners as the industry becomes more and more globally accepted. For example:

  • A medical marijuana company always has the potential for a large-scale buyout by tech or pharmaceutical companies.
  • The success of recreational cannabis stocks will depend on the degree of expansion, innovation, and sales numbers.

Regardless of which side of the industry you’re investing in, it’s essential to keep an eye out for any business decisions that could potentially impact your investment.

Consider: Thinking Globally

America isn’t the only country that’s going through a ‘Cannabis Renaissance.’ We see the recreational and medical marijuana markets blossom all over the world.

The global cannabis market is valued at an estimated $10 billion[34]. This means there is so much potential for investments outside of the United States and Canada.

But unsurprisingly, just like in America, legal, medical cannabis is more widely accepted than legal recreational marijuana:

  • There are almost 50 countries[35] that allow the legal, medical use of marijuana.
  • In comparison, only a few other countries[36] have legalized it recreationally.

Investing in an industry that’s already decently established will be more secure than an industry that has the potential for some explosive growth.

When investing in cannabis (or anything for that matter), it’s essential to pay attention to companies that are not only focused on doing business in the U.S. but doing business internationally.

In Conclusion

Whether you’re investing in recreational cannabis or with the top medical marijuana companies, any investment comes with its own set of risks[37].

The market is volatile and still very young, so at this point, we only have short-term trends to analyze.

There is still a lot to learn about these industries and even cannabis itself.

Investing strategically comes down to learning everything you can about the industry you’re backing. The cannabis industry has many moving parts, legal grey areas, upside potential, and volatility to consider.

Because of this volatility, cannabis is a riskier investment when compared to other industries. But when done right, investing in cannabis companies can be an extremely lucrative move.

With global expansion booming, the potential for financial gain is enormous. It’s just about finding the best companies in the industry to invest in.

Using the material in this document as a guide should help you navigate this exciting time as an investor in the cannabis market.

For further information, book a complimentary consultation with Gladbrook’s Founder, Warren Blesofsky.

Photo of Warren Blesofsky, Co-Founder & President, Gladbrook

Warren Blesofsky

Co-Founder & President, Gladbrook

Warren is a scientist, real estate broker, environmentalist, and co-founder of the Sklar Center for Restorative Medicine. After graduating from UC San Diego with a Master's degree in Biochemistry, Warren has had several successes in medical research, alternative medicine, real estate, and distressed asset fund ventures. Warren and co-founder Ryan Elmore's mission is to improve our world's health, well-being, and enjoyment by investing in the future of cannabis and plant medicines.

Book a complimentary Cannabis Investing Consultation with Warren.

References

[1] The total U.S. economic impact from the newly published MJBizFactbook
[2] Just How Big Will the Marijuana Market Really Be
[3] Lessons from the World’s Largest Cannabis Market
[4] Medical vs. Recreational Cannabis – Which is the Future
[5] US Cannabis Sales Hit Record 175 Billion
[6] Canadian Cannabis Market
[7] What are Meme Stocks
[8] Marijuana Stocks
[9] Marijuana Industry Overview
[10] Medical Cannabis Stocks vs Recreational Cannabis Stocks
[11] Timeline for Marijuana Legalization in the United States.
[12] Therapeutic Effects of Cannabis and Cannabinoids.
[13] New Prescription Drugs: A Major Health Risk With Few Offsetting Advantages
[14] Colorado passes $1 billion in marijuana state revenue
[15] Colorado’s Record-Breaking Marijuana Sales Top $2 Billion In 2020
[16] List of 2020 United States cannabis reform proposals
[17] A Record Number of Americans Support Legalizing Marijuana
[18] What is CBD
[19] Benefits of Marijuana
[20] Marijuana is Safer
[21] Marijuana vs Alcohol
[22] Survey of Marijuana Law in the United States: Introduction
[23] A Brief History of the Drug War
[24] Marijuana Laws by State in 2021
[25] State Medical Marijuana Laws
[26] 3 Reasons Medical Marijuana Is a Better Long-Term Investment Than Recreational Pot
[27] That Large Spike in Cannabis Sales Due to the Coronavirus — It’s Already Tapered Off
[28] Medical vs. Recreational Cannabis: Which Is the Future?
[29] Deep Dive: Recreational Marijuana Tax Revenue in the United States
[30] Several States Considering Legal Recreational Marijuana
[31] Marijuana Taxes
[32] How Do Marijuana Taxes Work
[33] The Future of the Marijuana Industry in America
[34] Marijuana Legalization
[35] Where is Cannabis Legal
[36] Cannabis Marijuana Market
[37] What Are the Risks of Investing in Marijuana Stocks?

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GET THE FACTS

CANNABIS INVESTING

Learn the science-based facts before investing in the cannabis industry. So you don't get burned! Download the free guide.

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