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Should You Invest in NFTs or Cannabis Stocks in 2022?

By David Jagielski – Updated Dec 26, 2021 at 7:52AM

Key Points

  • NFTs were a new phenomenon in 2021 but are now a popular way to sell and monetize things.
  • Cannabis is a fast-growing sector that investors can gain exposure to in many different ways.

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Both are emerging sectors that are rising in popularity.

Non-fungible tokens (NFTs) have risen significantly in popularity this year. Digital artwork has been selling for millions of dollars and investors have been betting on NFT stocks. Another industry that possesses significant potential over the long term is cannabis, which remains illegal in most parts of the world.

Both of these sectors have some attractive growth potential. But which one is more of a sure thing, and which is the better investment heading into the new year?

Two people working on their computers in a shared space.

Image source: Getty Images.

The case for NFTs

The NFT market has the potential to be massive, with just about anything being digitized, whether it's a tweet, a baseball card, or a piece of artwork. JPMorgan Chase estimates that each month, these digital art items generate $2 billion in sales -- five times the $400 million they were bringing in at the start of 2021.

The top bank said, "by creating marketplaces for illiquid assets such as digital art, collectibles, music, gaming, and other assets, the NFT universe is surely set to continue to grow strongly over the coming years because it helps to solve the problem of injecting liquidity into naturally illiquid assets such as collectibles." According to estimates from Cointelegraph, NFT sales could hit a record $17.7 billion in 2021.

As NFTs become more mainstream, they will become more liquid, making it easier to buy and sell them. There are many marketplaces out there, with OpenSea being among the most popular ones to buy and sell digital items. You can also create your own NFTs to sell on these platforms.

There still aren't many NFT stocks, but a new exchange-traded fund, the Defiance Digital Revolution ETF (NFTZ), launched this month and focuses on blockchain, crypto, and NFTs.

The case for cannabis

Like NFTs with their volatile swings in value, cannabis stocks aren't a risk-free investment by any stretch. Marijuana remains illegal in the U.S. at the federal level, and that makes it difficult for businesses to raise money to fund their growth. Multi-state operators can't trade on the major exchanges and accessing banking services is a challenge. Despite these obstacles, the sector has been able to grow. The cannabis industry is much more evolved than the NFT market, so there are many more ways for investors to gain exposure to it.

Investors can buy shares of a top cannabis producer such as Trulieve Cannabis, which is not only on track to generate more than $1 billion in revenue next year but is also profitable. And with the industry continuing to grow as more states and countries permit marijuana use, there's more room for Trulieve and other cannabis producers to expand their operations. Analysts from Markets and Markets project that by 2026, the global cannabis market could be worth more than $90 billion, growing at a compound annual rate of 28% until then.

And if investing in a producer is too risky for you, you can buy shares of a dividend-producing real estate investment trust such as Innovative Industrial Properties, which just rents out space to pot companies. There are also pick-and-shovel plays such as Agrify and GrowGeneration that provide marijuana producers with the tools and solutions they need to grow their crops.

Which one is better?

NFTs are highly speculative in nature and it can be difficult to discern how much a digital item is worth. Physical paintings are hard enough to value, let alone digital versions. Cannabis offers the more stable investment option because you can invest in companies that are already generating cash and profits, and it's easier to see how and why the business will rise in value. With NFTs, there's significantly more risk and uncertainty involved. You might get lucky and turn a profit buying and selling an NFT, but the safer option for 2022 is undoubtedly to invest in the cannabis sector.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends GrowGeneration Corp, Innovative Industrial Properties, and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

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