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Cannabis back to legal! A good opportunity to invest?

2018-10-17 08:33 Tag:Investment News

Global spending on legal cannabis is expected to grow 230% to $32 billion in 2020 as compared to $9.5 in 2017, according to Arcview Market Research and BDS Analytics. The research projects a majority of that, nearly $23.4 billion will come from the United States. In context of more states voting in favor of marijuana use legalization and business interest sparking across the board, that definitely would make sense.

As of June 29, 2018 the United States Marijuana Index, despite a lot of uncertainty around regulations, has over the past 1 year gained 71.49%, as compared to about 12% gain seen by the S&P 500. Given that is not exactly an apples to apples comparison, but it does make a case to at least investigate investments in marijuana stocks.

The stock market:

Tilray Inc. (U.S Cannabis company) is setting a record high – again n September 18,2018.

Shares rose as much as 28 percent to $153.88 as of 1:35 p.m. in New York after the British Columbia-based cannabis company received approval from the U.S. government to import medical cannabis into the country for a clinical trial. The gain added nearly $3 billion to Tilray’s valuation, pushing it above $14 billion to top peer Canopy Growth Corp. and making it the largest cannabis company.

The news signals yet “another encouraging sign of improved government support for cannabis research,” Cowen analyst Vivien Azer writes in a note, and the increased medical applications “add another domino to future legalization in the U.S.” The move also puts Tilray in a better competitive position against peer Canopy Growth Corp., which has 39 U.S. patents and 15 clinical trials, said Azer, who rates both stocks outperform.

Shares of other cannabis-related stocks are also trading higher, with the ETFMG Alternative Harvest fund, which trades under ticker MJ, climbing 7.2 percent. Canopy Growth gained 6.3 percent, Organigram Holdings rose 5.5 percent, Cronos Group climbed 16 percent. Aurora Cannabis Inc., which was halted earlier, gained 6.9 percent.

Who is eyeing the legal marijuana industry?

Food and Beverage companies:

Bloomberg — Constellation Brands Inc., which for seven decades has made its money off beer, wine and whiskey, sees its future in a marijuana leaf.

In the biggest (legal) cannabis deal, the Victor, New York-based beverage company will spend about $3.8 billion to boost its stake in Canadian grower Canopy Growth Corp., betting legalization will gain traction around the world and especially in the U.S.

“This is rocket fuel,” Canopy Chief Executive Officer Bruce Linton said on the company’s earnings call Wednesday. “We’re going to be way more global.”

Constellation, among whose brands are Corona and Ballast Point beers and Robert Mondavi wine, will own 38 percent of Canopy, up from about 10 percent, according to a statement Wednesday. The record investment reflects a world in which pot has become ubiquitous as its counterculture stigma fades. In the U.S., a patchwork of state laws and gentle enforcement under the Obama administration have made its pungent odor common from Colorado ski towns to the sidewalks of New York.

Now, makers of alcoholic beverages are trying to add cannabis as an edgy ingredient as their traditional business slows. Molson Coors Brewing Co. has started a joint venture with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market. Heineken NV’s Lagunitas craft-brewing label has launched a brand specializing in non-alcoholic drinks infused with THC, marijuana’s active ingredient.

In states that have legalised cannabis, binge-drinking rates have fallen 9% below the national average, and 11% below states that don’t allow the sale of recreational marijuana, according to the note. Adults in states with legal cannabis binge drink an average of 13% fewer times per month than those in states without legal recreational marijuana.

Legal marijuana could soon become a bigger industry than soda, and it has already started putting pressure on alcohol sales, according to the investment bank Cowen. Legal marijuana sales hit $US9.7 billion in sales in 2017, a number that does not include the industry in California, where recreational marijuana sales began on January 1, 2018. That state’s market is predicted to hit $US5.1 billion in sales by the end of 2019, outpacing beer sales. If marijuana is made legal nationwide in the US by 2030, the legal weed industry could generate $US75 billion in sales by that year.

CBD, or cannabidiol, is linked to a range of health benefits and is used in FDA-approved epilepsy drugs. It’s also become something of a health-food boom as of late, showing up in products like teas and candies. Coca-Cola is reportedly eyeing the legal marijuana industry. The beverage maker is in discussions with Aurora Cannabis, a Canadian cultivator, to develop beverages infused with CBD, a non-psychoactive compound found in marijuana.

Businesses in the cannabis industry

The rapid expansion of the cannabis industry has created opportunities for a number of new companies to develop products, technologies and services beyond just the cultivation and distribution of cannabis itself. There are now a number of businesses operating under the umbrella of the cannabis industry, even if their business does not actually grow or sell cannabis products directly, making it possible to invest in a cannabis company without investing in the cultivation or distribution of cannabis itself.

Some examples of businesses operating within the cannabis industry include:

Agriculture technology: Businesses that support the innovation and development of equipment required to cultivate cannabis, such as automated fertilizer systems, greenhouse technologies and improved lighting systems.

Ancillary products and services: Businesses that offer products that complement the cannabis industry as a whole, which can include products like a cannabis breathalyzer to laboratories that test cannabis products. This also includes companies that provide insurance to cultivators as well as those that create consumer packaging for products.

Biotechnology: Businesses that focus on the pharmaceutical applications of cannabis by developing treatments to target illnesses and diseases.

Consulting services: Businesses that respond to the complexity of rules and regulations around cannabis between different jurisdictions. They may provide services to assist with licensing, zoning or advising on operational processes.

Consumption devices: Businesses that create products that people use to consume cannabis.

Cultivation and retail: Businesses that grow and sell cannabis, and are often the types of businesses that most people think of when discussing the cannabis industry.

Cannabis products and extracts: Businesses that sell cannabidiol products, edibles, topicals, drinks and other products.

Holding companies: Businesses that typically own a considerable number of voting shares in a variety of cannabis companies, allowing them to influence the management and affairs of the companies held.

Industrial hemp: Businesses that provide products using industrial hemp, which is different than cannabis and may have numerous applications and uses, including creating consumer products like paper and clothing, as well as building materials, fuel and foods.

Organic farms: Businesses that provide organically-grown cannabis to other companies or sell to consumers directly, relying on the increasing demand for organic products and services to drive the business’s growth.

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