Canada, and certain U.S. states, are breaking ground with new cannabis laws. Cannabis Investment Opportunities and uncertainty in the budding market as regulations and business models establish themselves.
Mature companies are also investing in the space, hungry to adopt a promising new market. The industry is ripe for new producers, technologies and services.
Where new ventures profit from changed laws and attitudes, investors can capitalize. From seed to sale, however, the cannabis industry consists of many silos. Here’s a look at some of the industries participating in the production of cannabis, and poised to profit.
Licensed Cultivation, Extraction and Retail
Also known as “Licensed Producers”, these are the companies that actually grow pot and extract cannabidiol products for edibles, topicals, drinks and other consumer products. These are the “pure-play” businesses that are front of mind in cannabis stock discussions.
The major “pure-play” companies are increasingly integrating other aspects of the business, such as by acquiring R&D companies, but we’ll mention a few of them here.
Canopy Growth Corp. is one of the largest and most well-known companies, thanks to early branding of their retail product known as Tweed. It has investment dollars from top U.S. liquor firm Constellation Brands Inc.
Tilray Inc., based in Nanaimo, Canada, caught investor attention in September, 2018, when its stock shot up over 90% to $300/share before pulling back to in the $100-$150 range. The stock was halted 5 times in a day.
Tilray crossed a major regulatory barrier when they announced the USDEA would allow the company to ship their product from Canada to the U.S.
Vancouver-based Aurora Cannabis Inc., is a leader in low-cost production due to its focus on state of the art facilities. Europe has been an attractive market to many of these companies, and Aurora secured a permit to sell its products to German pharmacies.
Aphria Inc. was among the first few big players to post profits with total earnings of $4.6 million in two fiscal years of 16/17. The company also got a bump from rumors that Marlboro cigarette maker Altria was looking to invest in the company.
Agricultural and Business Technology
Businesses require technology to cultivate and package cannabis products day-to-day. For example, cannabis companies are buying automated fertilizers, greenhouses, lighting systems and specialized machinery to apply excise tax stamps. Business administration will require software technology as well. Employee management, production compliance, security and reporting transparency are some of the many technologies providing support for the budding industry. Software support infrastructure shows a great deal of promise in the cannabis sector. When we look at the necessary reporting to government agencies and expanding legalization to different jurisdictions, software automation reporting is an interesting investment opportunity.
Biotechnology and Biopharmaceutical
Certain businesses work on cannabidiol pharmaceutical research and development. They’re aiming to develop treatments to target illnesses and diseases such as epilepsy and anxiety.
Since cannabis was removed from the Schedule I drug list in the U.S., the space has expanded. Cannabinoid drugs that pass clinical trials could become popular in treating neurological and other disorders.
In this sub sector, we include England’s GW Pharmaceuticals and Stanford, Connecticut’s Cara Therapeutics Inc. like many pharmaceutical companies at early stages, buying these players’s stocks comes with the risk that their therapeutics won’t make it to market. For those that do, however, there is huge potential to disrupt a multi-billion dollar pharmaceutical industry.
Creating cannabis consumption products such as vape pens and softgel technology is yet another silo in the industry.
From growers to tech, there are many exciting investment opportunities in the cannabis sector. When starting out, we suggest you find the space you find most interesting, do your due diligence, and invest wisely.
All investments come with risks. Some risks are specific to the cannabis industry. First, valuations are risky, as some cannabis company valuations are based on future sales of their product. Also, in the early days of marijuana investing, some medical marijuana companies didn’t provide adequate disclosures, for example the licenses required to grow cannabis.
Government regulation is another risk. Cannabis laws are new nearly everywhere, and are still dynamic. That changing environment can affect a the ability to sell products profitably, and can be expensive for companies to comply with.
Read the disclosure documents. Any company trading publicly provides investors with documents such as a prospectus or offering memorandum , which contains information about the business and its operations in specific jurisdictions, as well as how its compliance with local laws. Furthermore, each company’s annual reports, management’s discussion and analysis (MD&A), and news releases will tell you whether they are making money and information about its finances and operations.
Speak with an advisor knowledgeable about the space who can answer any further questions you have.