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Why Cannabis Could Be a Key Part of Shopify's Growth

By David Jagielski - Sep 27, 2019 at 7:00AM

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A burgeoning cannabis industry could generate a lot of traffic on Shopify's platform.

The cannabis industry is growing at a fast pace, and one company that could stand to benefit a lot is Shopify ( SHOP -0.86% ). While it doesn't sell or grow any cannabis, many companies are using the platform for online pot sales. And with a lot more growth on the way, it could be a great opportunity for investors who want to benefit from the opportunity without actually investing in marijuana stocks.

In just the U.S., sales are expected by some estimates to hit $30 billion in just four years. It's a significant opportunity and one that Shopify could cash in on.

Shopify expands platform to U.S. to sell CBD

The tech company announced earlier this month that its doors are now open to merchants looking to start selling cannabidiol (CBD). The caveat is that it must be derived from hemp, which was legalized through the passing of the farm bill late last year. While hemp-derived CBD is still a small subset of the market, once it becomes federally permissible to sell marijuana, it's likely Shopify will allow other cannabis products to be sold as well. For now, the NYSE-based stock is limited in what it can do to ensure it's not in violation of laws that could jeopardize its listing on the exchange.

A cannabis plant

IMAGE SOURCE: GETTY IMAGES.

In Canada, Shopify has already been the platform of choice by many cannabis companies and it has been used by government-run websites as well. When the adult-use market opened last year, the company was seeing 100 orders coming in per minute. 

Shopify confirmed on its website that it will offer U.S. merchants the same platform that has already been serving Canadian cannabis companies. 

Some of the tools that Shopify will offer in more than 40 states across this country will include those that will assist with marketing, payment processing, shipping, and online store design. What's made Shopify appealing to many merchants is the simplicity and ease of use that allows virtually anyone to sell products online. And that can be beneficial to cannabis companies by reducing the need for them to have dedicated IT staff devoted to running an e-commerce site.

With people being able to have pot delivered and ordering online from many different vendors, there's definitely a demand from consumers to be able to purchase CBD and other cannabis products online. However, for now, Shopify will only be able to offer services for hemp-based products.

Key takeaways for investors

Getting into the cannabis industry is a great way for companies to benefit from the growing popularity of CBD and cannabis in general. A company like Charlotte's Web has already benefited from a lot of growth in hemp products and has its products in several thousand stores across the country. For Shopify, it's a no-brainer to tap into that opportunity.

In addition to boosting its sales today, Shopify will also be able to generate relationships with companies that could help pave the way for more opportunities if and when marijuana becomes legalized nationwide.

Getting into cannabis is an easy way for the company to grow its business over the short and long term, and it's certainly going to be less costly than getting into fulfillment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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