For investors taking a full-on look at the cannabis industry, the perception can be a common one: That there’s potentially historic growth potential here (which is true), but also higher risk and uncertainty. But what if there were a way to harness this unlimited growth potential with less risk? As it turns out, there is, by investing in cannabis labs, which are immune from product ownership risks, all while their essential services are being increasingly required by law.
Cannabis labs right now represent a comparatively low-risk opportunity that’s still largely “hidden” within the most explosive growth industry on the market today: the larger cannabis sector.
What follows are three primary advantages for investors who choose cannabis labs over riskier but more mainstream cannabis investments in groups like farming and production, dispensaries, ancillary products, and more.
State-Mandated Testing Requirements
Rapid expansion to more states in the US, as well as throughout Canada, will create an immediate and sizable demand for product testing that ensures safety and quality controls. In fact, industry experts are predicting that cannabis labs may generate $800 million or more in revenue in the next 4 years alone.
There’s a real need for cannabis labs, too, as there are hundreds of compounds in a single cannabis plant, and despite some perceptions that this is a “natural” or “organic” industry, unsafe levels of contaminants such as metals, fertilizers, and pesticides have been found in some incidences, and could pose serious health risks.
This burgeoning growth industry, and especially the states themselves, can little afford health- and safety-related controversy, and as a result, investors can look for some states where cannabis is already legal to play catch-up and pass new testing requirements, and new states to mandate testing as a condition of legalization. All will undoubtedly be strong catalysts for growth among cannabis labs, which makes regulation the first of several reasons why investors may want to take notice right now!
Cannabis Labs Never Take Ownership of the Physical Product
Next, unlike growers and production facilities, and especially the dispensaries that sell cannabis to consumers, cannabis labs act as impartial third parties, and are largely free from the risks and legal “red tape” that investors may find with
Cannabis labs simply contract with the dispensaries or other entities and are compensated for their testing and quality assurance functions. The labs’ business and bottom line, however, is unaffected by the results of the testing.
The nature of their business means that cannabis labs may carry lower operating costs, less complex regulation, and in total, less risk and a stronger fundamental profile for investors. Plus, the fact that cannabis labs never assume actual ownership of the physical product means their interests are purely medical and/or scientific, and are not built or dependent upon the sale of cannabis. And while that’s an advantage all its own, it also helps introduce our next point…
Fewer Moral Objections on Part of Investors
Indeed, not all cannabis stocks are created equal! In fact, despite being a member of the controversial cannabis sector, cannabis labs represent an interesting sub-industry group, and as you hopefully can now see, one that is not at all in the business of simply “selling pot.”
Instead, a detailed look beyond the surface will show that cannabis labs have several solid catalysts for growth in their favor, and share only a broad category with the “pure” cannabis plays that are notorious for higher risk, and perhaps moral objectivity.
Investors might even think of cannabis labs along the same lines as oil services or energy transport stocks, which provide essential (and highly lucrative) services, albeit within a somewhat contentious and polarizing sector. Investors who know the full story, however, may be less likely to pigeon-hole cannabis labs as “sin stocks,” and instead see some of the unique merits that make them one of the most attractive, but lesser-known, growth investments on the market today!
WHAT IT MEANS FOR INVESTORS
Cannabis labs may provide a unique opportunity to take some of the speculation out of cannabis investing. With state-mandated lab testing only set to increase, there’s an element of certainty appearing in this sub-industry that investors simply can’t find elsewhere across the larger cannabis sector. That, combined with less risk and moral objectivity, only add to the appeal, making cannabis labs more viable investments that even some socially responsible and risk-minded investors can now seriously consider.
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Partner | Debtcraft
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