Even before the legalisation of recreational cannabis in Canada in October 2018, money was already pouring into the industry.
With legalisation for medical and recreational use spreading, the interest from both investors and consumers is increasing, and more and more people are now becoming interested in buying cannabis stocks. Read our full guide to find out how to invest in marijuana in 2019.
What Are Cannabis Stocks?
Cannabis stocks are shares in companies that are growing cannabis for the medical and recreational markets and ancillary companies.
Not surprisingly, given Canada’s legalisation of the weed, it is Canadian companies that have been leading the way.
However, more companies are popping up in other jurisdictions as the medical, wellness, food, beverages and recreational markets grow and expectations of future growth rise.
5 Reasons to Investing in Marijuana stocks
1. Hemp is going to be big
A further clarification rounds out the picture. The cannabis family is classified into either Indica or Sativa. The marijuana plant is a member of both but hemp is Sativa-only.
Although it had previous been technically legal to cultivate hemp in the US providing the THC content did not exceed 0.3%, in effect the US 1937 Marijuana Tax Act made it illegal to possess all forms of cannabis thereby hindering cultivation.
Hemp had been cultivated in the US since the seventeenth century as a mainstay of the colonial economy to make ropes, textiles, sacks, canvas and paper.
With the passing of the US Farm Bill in 2018, hemp has again been legalised following its removal from the schedule 1 controlled substances categorisation. Production is expected to take-off rapidly.
However, bear in mind that the US Food and Drug Administration has ruled that hemp products are not allowed to be used for dietary purposes and CBD-infused food and beverages is not legal until later this year.
The CBD hemp market in the US is set to grow to $1.3 billion by 2022 for a five-year compound annual growth rate (CAGR) of 27.2%, according to the Hemp Business Journal. That’s a 300% increase. It could expand even faster than that if established farmers turn to the crop.
Investors should also be aware that the research has only got started in earnest on CBD and THC, and it is pretty much non-existent when it comes to the bulk of the cannabinoids isolated to date. There could be many more yet to be isolated.
2. Legalisation of marijuana
Cannabis legalisation for medical use is spreading and with it the opportunity for cannabis companies.
Recreational use will be slower to be legalised but all the signs point to change as younger generations grow older and more hostile older generations pass away.
The decline in beer drinking in the west among millennials is just one sign of what the future may hold for cannabis.
The addressable market (which we discuss further below) could be as large as $500 billion if the disruption of the medical, food and beverages industries comes off.
3. Wellness, beauty and edibles
Two key growth areas will be in wellness and edibles. CBD is the key active ingredient for all those product types. CBD oils are selling like hot cakes for ailments such as anxiety.
It is also finding its way into topical products for skin health and beauty.
For example, MGC Derma cream is a hit at the luxury outlet Harvey Nichols. The cream is made by Australian medical research company MGC Pharmaceuticals.
Edibles gaining in popularity include Lord Jones Old Fashioned High CBD Gumdrops and To Whom It May CBD Chocolates.
In wellness there is Sträva “Peace and Wellness” Restore Coffee, which can be consumed to “pair alertness with calmness”.
4. Stock prices attractive in small caps and acquisition targets
Admittedly there are some pretty meaty valuations among the top flight cannabis stocks but under the radar there are great risk/reward opportunities among their small-cap peers. Some of the candidates that fit the bill are The Green Organic Dutchman, OrganiGram and Innovative Industrial Properties and are all mentioned in more detail below.
And of course there are cannabis firms that could come to the attention of a deep-pocked suitor eager to get into the space. HEXO is often talked about as a target and is currently in a partnership with brewer Molson Coors.
With the sharp sell-off at the end of October last year, now could be a good time to enter the market before it gets too frothy again.
5. Medical uses – just scratching the surface
The medical marijuana industry’s full potential is very far from being visualised let alone realised.
Put that another way, research has only just started in earnest and with 113 cannabinoids that have been isolated so far, and no doubt many more compounds to be discovered, the possible use cases could mushroom.
In something of an endorsement of the validity of certain cannabis-based treatments as effective, or at least not harmful, last year Sun Life Financial began offering medical marijuana coverage.
Sun Life is one of Canada’s largest insurers and other insurance companies, despite early reticence, have followed in its path to provide cover for medical marijuana treatment.