This could be the biggest money-making opportunity of the decade

A change in mindset often occurs during periods of stock market volatility. Some investors go from trying to make money to trying to avoid losing it.

The problem, however, is that times like these can offer great ways to make a profit – if you keep your eyes peeled. There is one particular area that many investors avoid or at least overlook and that could be very lucrative over the next few years. It might even be the biggest money-making opportunity of the decade.

Down but not out

Curious about the Mystery Investing Opportunity? Let’s cut to the chase: it’s cannabis.

You might be skeptical. It’s understandable. Cannabis stocks have been overvalued in recent years. Some valuations have become downright ludicrous. When the cannabis industry experienced severe imbalances between supply and demand, most cannabis stocks collapsed. The performance of the ETFMG Alternative Harvest ETFone of the largest marijuana ETFs on the market, shows how the story unfolded.

GM given by Y-Charts

However, the cannabis market is not a simple novelty. Market researcher BDSA estimates that the global legal cannabis market reached $30 billion in 2021. The United States accounted for $25 billion of that total.

Certainly, the explosive growth seen in the early days of cannabis legalization is a thing of the past. But the BDSA predicts the global cannabis market will nearly double to $57 billion by 2026. Other analysts believe the market could grow at an even faster rate.

Potential ways to make money

It’s not always easy to identify likely long-term winners in a fast-growing market that’s still in its infancy. But a few companies stand out as the most likely to succeed.

Cresco Laboratories (CRLBF -8.12%) is on track to soon become the largest cannabis company in the United States by revenue. The multi-state operator hopes to finalize its acquisition of Care British Columbia by the end of 2022. Once the transaction closes, Cresco will operate more than 130 retail stores in 18 markets, including the 10 fastest growing cannabis markets with expected annual sales of more than $1.4 billion.

The company already ranks as the number one wholesaler of branded cannabis products in the United States. It also holds the top market share in cannabis product categories including flowers, concentrates and vapes.

Innovative industrial properties (IIPR -5.98%) (IIP) is the leading real estate investment trust (REIT) serving the cannabis industry. The company currently owns 111 properties in 19 states.

Cannabis operators sell their properties to IIP and then rent them out under long-term leases. This model has proven to be very lucrative for IIP, with its profits skyrocketing more than 90 times over the past five years. As the US cannabis market grows, IIP is also expected to grow.

Scotts Miracle-Gro (GMS -4.84%) is best known for its consumer lawn and garden products. However, the company’s Hawthorne segment is also the leading provider of hydroponic products for cannabis growers.

Hawthorne is no longer the growth engine it once was for Scotts, primarily due to oversupply issues plaguing the US cannabis industry. However, the company should have strong long-term prospects.

Short-term headwinds

Cresco is trading at less than 1.3 times sales. And that metric doesn’t reflect the big boost in revenue the company will have once its acquisition of Columbia Care closes. IIP sports a forward earnings multiple of less than 14.6, which is low for a company with such a rapid growth rate. Shares of Scotts Miracle-Gro are trading at just 12.9 times expected earnings.

These low valuations reflect the current headwinds in the cannabis industry. Too much supply has had a negative impact on the growth of cannabis operators such as Cresco. This affected the ability of at least one of IIP’s tenants to pay rent. And it hurt sales of hydroponics for Scott’s Hawthorne unit.

However, imbalances between supply and demand resolve over time. The cannabis market will almost certainly continue to grow vigorously. Cannabis really could be the biggest money-making opportunity of this decade – or at least one of the best opportunities.

Keith Speights holds positions in Innovative Industrial Properties. The Motley Fool holds positions and recommends Cresco Labs Inc., Innovative Industrial Properties and Scotts Miracle-Gro. The Motley Fool has a disclosure policy.