Thesis Portfolio's 'Mary Jane' Thesis - Investing in the High Growth Cannabis Sector.

The Cannabis Sector is one of the themes that the Thesis Portfolio Investment Committee feel has very attractive growth prospects. Since its deregulation, the marijuana industry has been on the rise both for recreational and medical purposes. It has an above-average growth rate compared to other industries, as more states and countries approve the product either for medicinal use, recreational use or both.

According to Arcview Market Research, over the next 7 years, the legal cannabis industry will continue to deregulate and grow around the globe to hit $57 billion by 2027. The adult-use (recreational) market will cover 67% of the spending; medical marijuana will take up the remaining 33%. The largest group of cannabis buyers will be in North America, going from $9.2 billion in 2017 to $47.3 billion a decade later. The largest growth spread, however, is predicted within the rest-of-world markets, from $52 million spent in 2017 to a projected $2.5 billion in 2027.

The key drivers behind the continued growth of the cannabis sector are easy to identify: continuing deregulation and new applications for cannabis within an ever-growing range of medical ailments. But the sector itself has been extremely volatile as a wall of capital was deployed by a long list of cannabis producers vying to land grab their market share and this led to short term overcapacity, decimating crop prices and growth projections. The pandemic of course exacerbated the downturn.

Recently, two new states, South Dakota and Mississippi, approved the use of medical marijuana, bringing the total number of states having legalized the use of medical marijuana to 36 states and 4 territories. ArcView Market Research estimates that all states will have legalized medical cannabis by 2025, and estimates that sales will reach $34 billion by the same year. There’s clearly a strong and increasing demand for IIPR’s services.

Several states remain poised to legalise (medical and or recreational) marijuana for the first time this year including Maine, New Jersey, Montana, South Dakota, and Arizona, Idaho, Mississippi and Nebraska. The cannabis sector as a whole has been under a cloud, but sector conditions now look as if they are slowly improving, while the medium term growth prospects seem assured. So the sector at this point enjoys both cyclical recovery and structural growth attractions.

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