Cannabis Industry Growth:
Migrating the black market to the regulated market in certain ares of North America, has caused the sales of the cannabis industry on the continent to hit $6.7 billion in 2016, a booming growth of 30%, compared to last year. This information was published by Arcview Group, a reliable organisation with its’ mission being, “To forge a principled and profitable industry from the ashes of cannabis prohibition.” Such high growth is considered abnormal for any type of investment, but with high returns, comes high risk. To make this clear, willing to make a high risk investment should not be considered as a bad decision. Risk tolerance is very individualistic and hugely varies for each one of us, here is an example to make this easier to understand.
Cannabis Risk Tolerance Example
For this example we will use Person A – Samantha and person B – Andrew. Samantha and Andrew are both living in the United States, however, Samantha is 24 years old, just graduated from college and because her parents have fully paid for her tuition fees and expenses, she has no debt. On the other hand, Andrew is a 35 years old school teacher, with a wife and two kids to think of. For the example being, let’s assume that both of them have the same amount of money saved – $30,000. Andrew must think of 4 people, while Samantha has only herself to consider. The expenses and responsibilities of Andrew are higher than the ones of Samantha. In the scenario of a bad investment, Andrew would be more affected than Samantha, thus he would rationally have less tolerance for risk, but not in all cases.
How to Measure Risk Tolerance
Before getting into investing, consider certain social, psychological and financial factors for your current position and then ask yourself how much risk are you willing to take. The decision that you will make, will not be bad even if you are Andrew and decide to take on a big risk, but only if you have deeply and rationally analysed your current position, in regards to past events and future plans. Your personality is also important when realising your tolerance for risk, thus consider this too.
Projections of Cannabis Growth by 2021
In Arcview Group‘s report, sales of cannabis in North America are projected to top $20.2 billion by 2021, assuming an annual compound growth of 25%.
“The only consumer industry categories I’ve seen reach $5 billion in annual spending and then post anything like 25% compound annual growth in the next five years are cable television, being 19%, and in the 1990’s and the broadband internet (29%) in the 2000’s.”
Tom Adams (Arcview Group’s editor-in-chief)
The risk of investing in cannabis comes from specific aspects of the complexity in the industry. Because it has been illegal, factors affecting the likelihood of events taking place, related to investment in the industry are strongly affected by the political environment. The political environment is currently showing signs in favour of weed legalisation, but only through time will we be able to obtain 100% certainty that they will be beneficial to the investors.