Cannabis is one of the most frequently used psychoactive substances worldwide, yet up until recently, it was illegal to use.
However, widespread prospects are emerging in the Caribbean due to the demand and legalization of medicinal marijuana in North America.
Since the countries in the Caribbean have a history of farming cannabis, government officials in these countries want to participate in the booming international market for the cultivation of legal marijuana.
Also, the legalization of medicinal cannabis manufacturing offers a chance to develop strong regional economies from already existing, illegal production.
Experts estimate that illicit production in Saint Vincent and the Grenadines, where medicinal marijuana is going to be legalized, presently surpasses $40 million annually, outpacing banana exports.
So, the question now is, where can you invest in the cannabis market in the Caribbean?
The legal status of cannabis in the Caribbean
The governments of Caribbean nations are famously conservative on many subjects, including drugs, despite the reputation of nations like Jamaica.
Cannabis is still prohibited in most Caribbean nations. Yet, more and more Caribbean nations have begun to legalize cannabis for medicinal and/or recreational use during the past several years.
The increased understanding of the potential medical and financial advantages of cannabis is one explanation for this shift in mindset.
Cannabis has the potential to cure several illnesses more successfully than conventional drugs in some situations.
Moreover, legalization may encourage marijuana travelers, which would increase tourism in these nations.
Only medicinal marijuana is being legalized throughout the Caribbean, with some nations hoping to make exceptions for certain religious traditions, such as those of the Rastafari.
Even though possessing a small amount of marijuana for personal use is still illegal, recent decriminalization in locations like Jamaica, Bermuda, and Puerto Rico means that getting caught by the police with it now more closely resembles a traffic infraction than a criminal case.
How can you invest in the cannabis market?
During the past several years, investment in cannabis businesses has grown in popularity, and the industry has begun accommodating investors looking to take a piece of the action.
Investors looking to profit from the expansion of this sector today face a wide range of financial and legal options.
Shares may be purchased directly on the TSX, or NYSE stock markets. And there is also a limited but expanding selection of mutual funds and exchange-traded funds, ETF, such as Horizons Marijuana Life Sciences, TFMG Alternative Harvest, Evolve Marijuana, etc.
Moreover, venture capital finance and crowdfunding initiatives are also options for more daring investors who want to invest in private enterprises.
It provides an indirect but still diverse way for regular investors to engage in this sector.
On the other hand, for non-equity options, many cannabis firms have started the issuance of bonds such as Aurora Cannabis.
Further, real estate investment trusts are another way that certain properties which are related to cannabis are offered (e.g. Innovative Industrial Properties; Canna Real Estate Advisors).
Should you invest in the cannabis market?
Anecdotal evidence from financial news outlets suggests that cannabis stocks are an excellent investment.
For instance, two stocks of cannabis businesses have ranked among the top-performing stocks in the list of the Toronto Stock Exchange, TSX, for more than three years.
While this may sound enticing, it may present a skewed view of the market, as two examples of once-star businesses that turned flop show a different picture.
CannTrust Holdings, a market giant, once boasted a nearly $1 billion market capitalization. However, its stock price dropped to a pennyworth stock of $0.83 from $9.85 in just over a few months.
Tilray is another case in point. With $9.7 million in quarterly revenue, it had a market capitalization bigger than American Airlines before its boom died down.
As a result, the full picture is not as lush green as previously expected, but is more nuanced, as is always the case in financial markets.
While the whole cannabis sector has the potential to become a big business and industry in the long run, predictions in the near to mid-term are less certain.
Below are the five main causes for this.
Potential risks of investing in the Caribbean cannabis market
There is still a significant risk regarding potential market consolidation and how fast the legalization process will progress in the US and other nations. Clear regulations are necessary for the market to stabilize.
It has been accomplished in Canada, but much less so in the United States where regulatory risk remains problematic.
Furthermore, the introduction of new competitors, cannabis pricing, and the industry as a whole will be impacted by how quickly other markets expand.
Most businesses operating in this sector are small caps, and research and information on them are scarce. Little market liquidity is also present, particularly in the US market, where many cannabis equities are still over-the-counter, OTC, traded.
The potential of price bubbles is virtually non-existent, as it is for most new business categories.
The recent two years' stock price and high multiples growth raise the possibility of a market correction, similar to that seen by internet businesses in 2000 or cryptocurrencies in 2018.
Nonetheless, this problem will eventually become less significant after the industry has stabilized and straightened itself out..
The sector is not consistent in its reputation and direction of the business. It is because there are two different businesses within the same industry.
The first one is the medical cannabis business which seems more feasible and effective but has several issues, particularly regulatory and political ones.
Like conventional pharmaceutical corporations, this sub-industry is mainly focused on clinical trials, distribution, research, and development.
The other one is the recreational cannabis business which is more ambiguous but should center on customer segmentation, branding, and marketing as it is done in the alcohol and cigarette industries.
It's uncertain how cannabis prices will change. In the short term, legalization should increase demand and raise prices. But the low barriers of entry for businesses may eventually result in an oversupply.
It may negatively impact prices and, as a result, business profits. As in many industries, the strongest survive the impending and unavoidable consolidation process.
In conclusion, despite cannabis being previously illegal in the Caribbean, these nations have started to realize the potential of this industry.
For foreigners trying to invest in this emerging cannabis industry, there are various methods available.
However, due to this industry being young, consider the risk before investing in this market.
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