The red-hot legal-cannabis market could have an even bigger year in 2019 than it did in 2018 as traditional companies see too much green in legalized pot to ignore. Experts say that as alcohol giants Molson Coors Brewing (TAP) and Constellation Brands (STZ) have already shown, the space is ripe for investment from traditional beer, spirits and other firms.
"I think [cannabis] is just too big of a category to ignore. I think all of the soft-drink companies will enter the category, just like alcohol companies," said J. Smoke Wallin of Vertical Cos., which helps cannabis companies with compliance, cultivation and retail/branding strategies.
Legal-weed companies like Canopy Growth (CGC) -- which STZ recently announced a $5 billion investment in -- are already enjoying the benefits that such interest provides. The company's Toronto-listed stock (ticker symbol WEED) has soared by some 500% over the past 12 months, while its U.S. shares have risen more than 70% since going public in July.
Things could get even hotter if the reported interest of Coca-Cola (KO) in weed company Aurora Cannabis (ACBFF) comes to fruition. Wallin told Real Money that he expects lots of traditional companies to enter at least the market for cannabidiol (CBD), a non-psychoactive cannabis ingredient with alleged medicinal properties.
For example, Wallin thinks food giants Nestle (NSRGY) and PepsiCo (PEP) are already examining opportunities in CBD-based products. "CBD looks like the brightest spot for the future, [and] 2019 will be a big year for more brands to enter this space," the expert said.
Traditional companies' growing interest in the market echoes more and more liberal attitudes toward legal marijuana and pot-related products. The Pew Research Center found that the percentage of Americans who favor legalizing pot has grown to 61% today from just 12% in 1969 when Pew first polled on the issue.
"I think it speaks volumes to how far we've come that Coke is even letting this rumor about Aurora float around," Wallin said. "I think it bodes really well for the industry and those in it." He believes the U.S. government could fully legalize cannabis at the federal level "in the next 12 to 18 months," following the lead of Canada, which is legalizing recreational marijuana next month.
However, Wallin expects that big consumer brands will remain more hesitant to enter the space for tetrahydrocannabinol (THC), the psychoactive ingredient in pot that makes users "high." The expert believes blue-chip companies like Coke and Nestle will be shy away from THC's more-uncertain legal and moral footings.
Jim Cramer, TheStreet's founder and Action Alerts Plus portfolio manager, agrees, recently saying that Coke would "be remiss" if it didn't look into CBD rather than THC. But Cramer also acknowledged the poll numbers that indicate a shift in U.S. public sentiment. "This stuff is much more main stream than you may realize," he said.
Don't Get Too High on Cannabis Stocks
To be sure, the market is extremely hot right now. Consider weed stock Tilray (TLRY) , which as up 25% as of Tuesday afternoon and has gained some 550% since going public two months ago.
Such price gains present big problems for investors who are too eager to chase legal pot's uptrend. While Cramer is confident that the market remains largely untapped, he warned that Canada's upcoming legalization is producing excess market euphoria. "Do not chase these stocks," he said.
Real Money columnist James "Rev Shark" Deporre agreed. "Expectations are extremely high, and it may require some patience to find attractive entry points," DePorre wrote in a column on Monday.