The legal marijuana market is projected to be worth $66.3 billion by 2025. Unfortunately, a large portion of that money is still in the illegal cannabis market right now.
Over time, this will change – and it’s not without the help of one of our top marijuana stocks to buy in 2019.
Canada and a number of U.S. states have legalized cannabis already. Support for legalization in the United States is roughly 66% consistently, according to Gallup, a rise of 30% from 2005 levels.
And yet, the illegal cannabis industry persists. It even thrives in places where marijuana is fully legal.
We’re going to show you why that is. Then, we’ll share how our top pot stock is engaging the cannabis black market in a price war-and winning.
Why the Cannabis Black Market Still Exists
The black market is notably strong in fully legalized locales like California and Canadian cities. And there are numerous reasons for this.
First, regulation and taxation can be hard on legal marijuana companies. These areas may end up making illegal weed easier to grow and sell than legal weed. California has been cited as the locus of this problem in the United States, but it’s not alone.
The licensing system in Massachusetts is famously slow. And it’s met with a wave of illegal marijuana sales. In fact, the forecast for the year is that three-fourths of marijuana sales will be illegal this year. And Massachusetts is a state where every form of cannabis is legal.
In Illinois, it’s the cost of a license that gets in the way. Vendors will pay a minimum of $225,000 for a license to sell marijuana. This is a huge cost for startups in the field. And it could be a deterrent for many entrepreneurs looking to enter the space.
In both Michigan and Washington, D.C., lawmakers have yet to hammer out a process for legal weed. Merchants in Washington, D.C. have coped by providing customers with a free eight ounces of cannabis bundled with merchandise like t-shirts and coffee mugs.
As for Canada, the supply of legal weed is so tight in Quebec and Ontario that there isn’t enough legal product to support demand. As a result, consumers turn to the black market.
Between delay, tight supply, and other restrictions, the legal cannabis industry has been stifled by overregulation. If illegal marijuana is easier to come by and cheaper than legal weed, there will be demand for the black market.
That means more competition for the best legal marijuana stock to buy. But this cannabis company has managed to keep prices low and in competition with the black market.
Some analysts even say its shares could soar as much as 169% over the next 12 months.
The Best Marijuana Stock to Buy in 2019
Hexo Corp. (NYSE: HEXO), a Canadian-based cannabis company, estimates that illegal marijuana sells for approximately CA$4.49, or US$3.43, per gram on the black market.
So Hexo has priced one gram of its new “Original Stash” marijuana product at that price point. You can buy it for CA$4.49 in dispensaries throughout Canada.
The only potential drawback is that the legal weed must be bought in bulk. Consumers have to purchase 28 one-ounce pouches at a time, for a total of CA$125.70, or $96.11.
While low prices do present a fear of lack in profitability, the strategy shows promise in beating out legal suppliers. If it does, all Canadian marijuana companies could benefit.
More sales could lower product expenses. Some bigger Canadian producers make weed at roughly CA$1, or $0.76, per gram or below.
Now, if 50% of the CA$4.49 price per gram is given to retailers and distributors, a CA$1 cost could result in gross margins at over 50% for Hexo.
If the company can increase its market share in the lower-cost segment and grab market share from the illegal providers, it could have an impressively robust business. That’s why it’s one of the top marijuana stocks to buy in 2019.
Illinois Becomes the 11th State to Legalize Cannabis (Making More People Rich)
Cannabis laws are being reformed en masse: Illinois has not only become the 11th – and second largest – state to legalize marijuana, but the first to do so by way of state legislation.
That means the medical, personal, and economic benefits of “America’s Green Gold Rush” are appealing to Republicans and Democrats alike.
One cannabis research executive is hailing Illinois the “Marijuana Mecca of the Midwest,” a hallmark of the rising uncapped profit potential ahead.
Once the feds end cannabis prohibition nationwide, all bets will be off – demand will boost share prices through the roof. But you can still get in on the ground floor, just in time for what could be the windfall of the century.
Illinois is already housing some of our top picks in the industry, so a few of our favorite stocks could get yet another boost.
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Source: Money Morning