No industry has been covered with so much more intensity than the cannabis industry. CNN, Wall Street, and Bloomberg have not hidden it from their headlines. But, perhaps, no one expected that the market size value would increase to $3.5bn in 2021.
The cannabis industry took the world by surprise. However, by the time many potential investors knew what was happening, existing ones were already milking the industry and raging in great ROI amidst uncertainties.
Before exponential growth, investors have experienced years of uncertainty. However, now that the bullish season is finally here, analysts predict it may continue throughout 2021 as many CBD product manufacturers are bracing for new horizons, development, and innovation.
Is this the right time for a potential investor to jump into the market? What about existing investors? Should they trust the bullish trend so much?
How the Boom Gave a Warning to Investors
The industry witnessed massive growth in 2020 during the COVID-19 pandemic. The world saw a rise in the consumption of cannabis-infused products for recreational and medical uses. This included topical and Sunday Scary CBD gummies. Perhaps, the lockdown made cannabis users find more time to indulge in their passion. Nevertheless, that was a record-breaking year, and many investors have gone agog about its expected outcome in the foreseeable future. But forecasts are not always accurate. That is why investors need to watch for signs and never ignore risks in the market.
5 Risks Investors Must Never Ignore About the Industry
Regulatory laws aren’t stable yet
To date, the regulators of CBD products in the western world are still exploring various frameworks, concepts, and frameworks upon which cannabis can be sold and consumed. Sadly, there is still more to do in this regard because manufacturers aren’t putting a halt to their innovative quest soon.
Each day, the market is flooded with new products, most of which are backed by research and technology. Hence, the government must keep up with the market changes and consider consumers before formulating short- or long-term policies.
No doubt, this is a crucial aspect that investors must always consider as it directly affects the market prospects of CBD. But, more so, many states are yet to legalize CBD in specific workplaces and other places.
Most states give liberty to employers to decide how their employees should consume CBD at work, while others clearly state their intent regarding CBD in the workplace. Unfortunately, these laws have been changed or modified several times in the past years, which has made the regulatory ground too shaky for CBD investors to ignore.
Profitability isn’t guaranteed
Just because the market is booming and sales are increasing each month doesn’t mean it will remain so. There are lots of factors that affect the demand for CBD. And once there is a slight negative change in any of these factors, the entire industry will experience a quake that won’t leave investors behind.
CBD market analysts may quickly forecast future sales based on past trends and government actions regarding regulatory policies within the past years. Still, these are not enough to determine its profitability in the long run.
Therefore, investors should know that successful returns on their portfolios may never follow a straight line. The market may experience continuous bull in the coming years, and they will bag in more profits than they have ever done.
On the other hand, the tides may turn around, and government regulations may become too stringent for manufacturers to thrive in some states. This may cause producers to “pull out” from the market and take their share of the bearish season. Consumers’ recreational tastes and preferences may also change so much that there might be a shift in demand for CBD products. Either way, change is the only constant thing the industry understands at the moment.
Expect high votality
Despite its small size, the cannabis industry is evolving gradually. As a result of the numerous uncertainties surrounding the market for recreational and medical marijuana, prices movements for traded companies may rise above average.
This will always be challenging for CBD market analysts because they may have a tough time forecasting future growth and price change. After all, the market is volatile. So even if they go deep in research, the best they can come up with are assumptions that may be far from reality.
High business startup risks
Just like in every other new industry, startups in the CBD industry face some inherent risks. While facing numerous competitions, they also have to deal with the rapidly changing dynamism that the sector presents.
Therefore, new investors soon realize the need to compete for their share of the market and secure their funds to realize their business objectives in the long run. But, even at that, new investors usually realize the urgent need to devise strong marketing tactics as the approval of marijuana in other countries means more CBD products on the market and more competition.
The market could also be disrupted with the entry of large companies that tends to “play big” as soon as they enter the industry. As a result, they could easily influence the market position and get a fair share of it with lesser effort than startups.
The Bottom Line
According to the FDA, all drugs containing CBD need approval from the agency. In 2018, the agency approved marijuana, CBD derived drug for the first time called Epidiolex. This was followed by the passing of a farm bill that legalized the regulatory production of hemp products.
This was great news for investors in the CBD industry because a murky legal status has marred the CBD industry for many years, preventing large corporations from dominating the industry.
With this information about the CBD market, the industry is yet to experience its peak, and the grass is greener for investors already. Therefore, it is safe to say that investors may continue to enjoy a bullish market even in the face of uncertainty.