There are a lot of similarities between cannabis and cryptocurrencies, viz. both are highly turbulent markets, subject to extreme highs and crushing lows; the regulation and legality of both fall in a more-or-less gray area; both assets have miserably failed to shake their perception of being aligned with black market activity.
Despite that a clear dividing line separates the two, suggests Rob Wertheimer, the founding partner of Melius Research.
“With cannabis, we know there is a market, all we need to do is just convert it to legal, isn’t it?” Wertheimer said during an interview with Yahoo! Finance. “Thus you see there’s a stronger foundation.”
Notably, in the United States alone, the total legal demand for cannabis is expected to reach worth $25.7 billion by 2025, up from $10.3 billion in 2018, suggests a report by analytics firm New Frontier Data.
A group of analysts from Wall Street firm Cowen has envisioned 4 key areas for cannabis:
- Over the counter pain and sleep
- Beauty and nutraceuticals
They believe that each segment carries major market promises.
“The consumer branding potential is extremely large; thus, cannabis fits naturally into a consumer’s staple space,” Wertheimer said.
Tilray (TLRY), Cronos (CRON) and Canopy Growth Corporation (CGC) — the three major public cannabis companies — witnessed a triple-digit increase in revenue over the last year, courtesy of legalization of recreational marijuana.
The analogy between cryptos and cannabis, however, deepens when economics is considered- both commodities have indefinite ceilings on supply.
Oversupply is a significant factor that undermines pricing power in their respective industries. For instance, Oregon — a mature legal cannabis market — has seen more than 6.5 years’ worth of recreational oversupply at the beginning 2019, as legalization resulted in a production influx.
In striking contrast, the UBS pointed, the demand for cryptocurrencies can go down, but its supply won’t ever.
Although both remain a lucrative industry for investors, the gap between interest and aversion has narrowed significantly among them.
According to the 2019 Trends in Investing Survey, a meager 1% of the 392 financial advisors (participants) were presently using or recommending cryptocurrencies in client portfolios
Lisa Thomas, Managing Director of Cowen, is of the view that “cannabis is much more aptly made with biotech than with crypto or tech”.