Marijuana stocks have been in the news for months. Many investors believe there is a boom in the industry and regret missing out. The truth is that it’s not too late to profit from marijuana. The industry did boom, and then it crashed.
Now, it’s time to look for bargains.
The Grey Area That’s a Multibillion Dollar Market
Marijuana is illegal under federal law. But, that hasn’t stopped states from changing how they regulate the substance. Nine states and the District of Columbia now allow for recreational marijuana use and 30 allow for medical use.
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It’s a big business. According to CNN, “The emerging industry took in nearly $9 billion in sales in 2017, according to Tom Adams, managing director of BDS Analytics, which tracks the cannabis industry. Sales are equivalent to the entire snack bar industry, or to annual revenue from Pampers diapers.
That was before California opened its massive retail market in January. The addition of the Golden State is huge for the industry and Adams estimates that national marijuana sales will rise to $11 billion in 2018, and to $21 billion in 2021.”
But, because the industry operates without federal approval, there are some hurdles to doing business. Many of those hurdles are financial.
Technically, banks are allowed to work with marijuana businesses, as long as they file reports and comply with a heavy set of regulations. Treasury Department guidance states that banks are required to file suspicious activity reports even in states where marijuana-related activity has been legalized.
The reports are required for anyone depositing funds “derived from illegal activity.” According to that logic, banks must also file a report when a state government deposits tax revenue paid by marijuana firms into the state’s bank account. This is why many banks just refuse to work with companies in the industry.
Despite the difficulty of operating, there are some investment opportunities available for investors in the United States.
Tracking Marijuana Stocks
An index of companies in the industry shows prices approaching their all time highs after a 54% crash that followed the 2016 election. Investors assumed the new administration would be less friendly to the industry than the previous one. They were right, but the industry remains in place and prices are recovering.
Many of the stocks in the index are rather small. The largest components of the index are shown in the next chart.
The smaller companies could deliver the largest gains, but the largest company on the list is closest to generating significant revenue.
GW Pharmaceuticals plc (Nasdaq: GWPH) is a biopharmaceutical company focused on developing and commercializing therapeutics from its cannabinoid product platform in a range of disease areas. The company’s lead cannabinoid product candidate is Epidiolex, which is a liquid formulation of pure plant-derived cannabidiol (CBD).
The Company offers Sativex (nabiximols), which is indicated for the treatment of spasticity due to multiple sclerosis (MS). The stock price is volatile, but in a long term up trend.
The trend is driven by sales and the outlook for its drug. In the most recent quarter, the company saw revenue figures of $3.35 million, topping our consensus estimate of $2.0 million. Total revenue was up 64.2% on a year-over-year basis.
“The positive outcome of the Epidiolex FDA Advisory Committee meeting was a momentous event for GW. The strength and consistency of the clinical data, together with the public presentations that featured very moving personal stories of the challenges associated with managing these difficult forms of epilepsy, led to a unanimous vote in support of approval,” said CEO Justin Gover.
Canada Could Start the Next Boom
Canada is expected to become the first major industrialized nation to legalize marijuana for recreational use nationwide later this year. By September, Canadian lawmakers are expected to take actions fully decriminalizing marijuana.
Canada’s projected cannabis market size is about $8 billion. Experts warn that current production can meet only a fraction of overall domestic demand for a medical marijuana community of just 300,000 people and demand is expected to outpace supply until 2021.
Analysts believe that Canopy Growth Corp. could be one of the biggest winners in that market. Canopy Growth trades in Toronto under the ticker symbol WEED and is available in the U.S. over the counter market under the symbol TWMJF.
Canopy Growth is a diversified cannabis firm, with multiple brands, curated strains, half a million square feet of production space, and a $4.35 billion valuation. The bullish company also boasts partnerships with leading names in the cannabis industry, including Tweed, Spectrum Cannabis and Bedrocan.
Canopy has been preparing for recreation legalization for the past few years. Shares in the firm jumped in March 2017 when the Canadian government indicated its push toward this year’s full legalization in 2018. That was nothing, however, compared to the last years’ astonishing 386 percent growth in stock, gaining the company a reputation as a “cannabis unicorn”.
The company continues to boast growing stock prices as stock market speculators sing its praises. As we all know, size does matter, and Canopy blows the competition out of the water in terms of peak annual production potential with what is soon to be 5.7 million square feet of space for cultivation, making it a no-brainer for investors.
Boosting growth in Canopy Growth is the fact that Constellation Brands, the company that makes Corona beer and other alcoholic beverages, recently invested $245 million into Canopy Growth.
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