Please ensure Javascript is enabled for purposes of website accessibility

A Foolish Take: Legal Marijuana Sales Could Still Grow

By John Maxfield – Apr 3, 2017 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even though sales of legal marijuana are skyrocketing, the trend may just be getting started.

If you're interested in business or investing, it's hard not to be curious about what's going on in the marijuana industry.

The market is booming thanks to an ever-increasing number of states that have legalized cannabis for both medical and recreational use. Legal sales of marijuana grew 30% last year, reaching $6.7 billion, according to Arcview Market Research.

What's so interesting about the market for legal marijuana, however, is that it isn't carving out a new niche, so to speak, as other incipient industries have had to do. It's instead just displacing the illegal market for pot.

One advantage of this is that it enables states and municipalities to tax sales that would otherwise be off the record. In 2016, for instance, Colorado bagged just under $200 million in tax revenue from legal marijuana sales, much of which will go to fund the state's school system.

A pie chart breaking down sales of marijuana in North America by legal vs. illegal.

Data sources: The Huffington Post, Arcview Market Research. Chart by author.

Another advantage, and this is of particular interest to investors, is that the pre-existence of an illegal market for pot makes it easier to forecast the size of a mature legal market. To this end, Arcview estimates that a total of $53 billion worth of marijuana was sold in North America last year, with 87% of that consisting of illegal sales. This implies that the legal marijuana market could still experience a more-than-sevenfold increase in size, assuming the trend toward legalization continues.

Growth like this is enough to intrigue any investor, but a word of caution is warranted. Unless and until Congress formally decriminalizes marijuana, few (if any) companies in the industry will gain access to reputable stock exchanges such as the New York Stock Exchange and Nasdaq. And without the transparency demanded by these exchanges -- not to mention the Securities and Exchange Commission -- the rule for investing in marijuana stocks for the foreseeable future is: Buyer beware.

Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*

Tom and David just revealed their ten top stock picks for investors to buy right now.

Click here to get access to the full list!

*Stock Advisor returns as of 3/24/2017.

The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.