The cannabis industry, although relatively new in the investing world, is quickly growing. Market developments, particularly political legislations, play a crucial role in dictating the growth of the industry.

Cannabis has been gaining wider acceptance, particularly in the North American region, and this is expected to continue over the near term at least. For example, many marijuana stocks rallied after the Democrats took control of the US Senate, as there is a higher possibility of cannabis-friendly laws on the federal level. Despite expensive valuations and sustained losses from bellwether companies, investors continue to plough money into this industry. It is important for investors to weed out market noise and assess companies based on their fundamentals and resource allocation.

In the investing universe, cannabis is commonly categorised into marijuana and hemp. Both marijuana and hemp are derived from the same plant, but are differentiated through their applications, cultivation methods and tetrahydrocannabinol (THC) content. THC is a psychoactive chemical responsible for the psychological effects (the feeling of being “high”). Hemp has very low THC content compared to marijuana, and hence this explains the widespread usage of hemp globally compared to marijuana, which is subject to strict legislations across most states and nations (see Table).

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