The Marijuana Industry – Getting High on Potential Returns
Have you ever thought about investing in marijuana? More and more investors are noticing the high market potential of cannabis. 😀 It’s easy to see why. Data suggests that the budding marijuana industry is one of the fastest-growing in North America. In 2013, the total revenue of the legal pot industry in the U.S. totaled $1.5 billion. By 2014, revenue jumped to $2.7 billion. It’s expected to reach $3.5 billion this year, and then up to $4.5 billion in 2016.
Those aren’t particularly large numbers. By comparison, the beer industry in the U.S. is about $100 billion a year. But the weed industry has a lot more potential for growth. Nearly half of the states in America have already legalized marijuana for medical use. And a handful of them even approved it for recreational use. 🙂
The problem with investing in pot companies in the past was simply that the market wasn’t big enough, and the industry’s future was too uncertain. Banks and venture capitalists were reluctant to financially back cannabis companies due to legal issues and the high-risk nature of a largely unregulated substance. 🙁
However, ever since Colorado and Washington legalized the recreational use of pot in 2012, there has been a great amount of pressure for more states to do the same. Next year voters in at least 7 more states will consider the decriminalization of marijuana.
Funding for marijuana start-ups now is more abundant compared to a few years ago. Dooma Wendschuh is an entrepreneur who makes distilled marijuana extracts. At an investor summit in Denver earlier this year, Wendschuh says he was “besieged by millions of dollars” worth of unsolicited offers to invest in his company. A quick look at his profit margins will explain why. He produces the extracts for only $2, and sells them for $35. “If you make it, it will sell. It’s unreal,” Wendschuh explains. The industry is slowly losing its stigma and is becoming a more legitimate market for a wider range of investors and financiers. 🙂
Investing in Pot
What got me interested in this market was Justin Trudeau’s victory last month in the election. I’m not just blowing smoke here. His Liberal Party campaigned on the promise to legalize cannabis on a federal level. Since he has a majority government I’m expecting policy changes to get passed through parliament relatively quickly. The federal and provincial governments will have to work together on new marijuana legislation, so I guess you can call it a joint venture.
Canada can learn a lot from our neighbors to the south. Colorado pulled in $76 million in marijuana taxes and fees last year. It also experienced a 9% drop in property crime. 🙂 The state of Washington brought in $70 million in tax revenue from $257 million worth of legal marijuana sales. I think British Columbia can easily match Washington in sales. 😀
When it comes to investing in marijuana caution must be exercised. There are currently a few hundred publicly traded cannabis companies in the U.S. and Canada combined. But most of these businesses are nano-cap and micro-cap stocks. This means they have a small market capitalization and carry a decent amount of risk. Many trade as penny stocks on the OTC market, which lacks the transparency and regulations of the larger exchanges.
Canopy Growth Corp
The one company that caught my eye was Canopy Growth Corp (CGC), formerly known as Tweed Marijuana. It’s based in Smiths Falls, Ontario. It currently produces and sells medical marijuana, such as cannabis oils for practitioners and patients. It only makes about $4 million in revenue per year, and isn’t expected to actually be profitable until the end of 2016. But I like how it has the facility and capacity to expand into recreational products. It could have a first-movers advantage if the company moves quickly in the next 12 months so I believe Canopy Growth Corp a good investment right now.
So last week, I bought 300 shares of CGC on the venture exchange for $2.55/share.
I only purchased a small amount because this is pure speculation and there’s a good chance I could lose my entire investment. Normally I don’t like to buy stocks that have a market cap below $300 million. But I decided to make an exception because I have a pretty good feeling about the growing marijuana industry in Canada. 🙂
To the best of my knowledge there aren’t any marijuana ETFs or ETNs on the market right now. But here are some other publicly traded companies in the weed business.
- Aphria Inc (APH) – A greenhouse growing company that provides medical marijuana for severe pain, weight loss, etc
- Insys Therapeutics (INSY) – An Arizona pharmaceutical company that develops supportive care products for patients.
- Cara Therapeutics (CARA) – A a clinical-stage biopharmaceutical company focused on pain management and reduction.
- OrganiGram Holdings Inc (OGI) – A New Brunswick company engaged in the licensed production of medical marijuana.
It’s difficult to value marijuana companies because the vast majority of them are simply not making any profits. However, as the industry matures over time the winners and losers will separate. But for those who are impatient like me, make sure you do your due diligence before investing your money. 🙂 As the trend toward legalization across North America continues, I’m hoping to see green in the future. 😉
Random Useless Fact:
It’s not always easy to find good company these days.
Thanks for this article on Canopy. I bought 500 shares before the election @ $1.56 and ended up selling at $ 3.00 last week because I am not a ‘risky’ investor and wanted to guarantee my investment.
I debated buying more and yesterday, I ended up buying another 1500 shares. I usually invest in ‘safe’ companies like banks, but If I want to grow my retirement fund faster, I have to take risks at this point. Since I can’t afford the tech sector shares yet (goog & lnkd) I figure this could be a good option.
Maybe it was your article on getting comfortable being uncomfortable in my investing portfolio that gave me the extra boost to go for it…:)
Congrats on your big win from before. 1500 shares is quite a lot. You have bigger balls than me. 🙂 I’m sure you have a good exit strategy planned out and you are disciplined enough to get out when you’ve hit your profit target. My personal plan is to hold it for at least 1 year and see what happens.
What do you mean you can’t afford the tech sector like goog and lnkd? They are 760 and 250/share right now. you bought 1500 shares at say 2.75/share which is over $4,000. You could have bought 5 shares of goog or 16 of lnkd with that money so you could have afforded it.
I think of it this way… I’m not saying it’s the right way… but for me, this makes sense: My long term investments are companies that give good dividend returns (banks & companies like SSW). My short term investments are companies that do not give dividend returns. (Canopy – Google) If I buy 5 google at $720 and they double in one year, I make $7200 If I buy 1500 canopy at $2.72 and they double in one year, I make $8250 Chances are Google will not double in one year. If I look at the history, last year at this date, google was selling at $541 per share – now $720 per share. Had I bought 5 shares last year, I would only be ahead by $895. On the flip side, Had I bought 1500 shares of Canopy last month at $1.56 and sold them today, I would be ahead by $1740. What could happen is that Google shares split, thus giving me 10 shares instead of 5. Still, for me, the profit margin for a 1 year investment is too low. If I were to buy Google, I would want a minimum of 25 shares. I can’t afford… Read more »
At $7 billion dollars annually, marijuana is the second largest industry in BC, next to forestry (@$15 billion). Yet untaxed and unregulated.
Taxation might effect pot firms a lot. There’s not a lot of weed millionaires in Colorado due to the high cost of operation.
There is also the problem of a high degree of outlets being robbed. When’s the last time a bank got robbed? How this effects profits etc I’m not sure.
Kind of reminds me of other times something “new” has entered the marketplace…some will survive, most won’t.
Also worth an investigative look is the legal-to-illegal history of canninis. All about the money.
I’m sure Spicoli would approve.
I didn’t know the industry was that big in this province. That is great to hear. More money for public service is usually a good thing. I read that legalizing marijuana would have lots of benefits for lawyers, accountants, bankers, and security companies. So that’s good for the general economy too. 🙂 Morally speaking some people believe pot is a gateway drug to heroin or other hard narcotics. So hopefully the system can keep it away from teenagers.
My wife is an accountant with a major accounting company. One of her clients is an commercial grower of MJ on contract with Health Canada. Legit 100%.
Here’s an interesting thing. Even though he’s 100% legit and passed several background checks, NO BANK WILL OPEN AN ACCOUNT FOR HIM. They don’t really care that it’s legit and legal, they don’t mess with this stuff until it’s 100% legalized. Very conservative of them. So, he has to do everything in cash. He pays his taxes in cash – literally goes to CRA office and pays his quarterly taxes with stacks of 20’s. He pays my wife’s invoices in cash too. Basically, he walks around with thousands of dollars all day long.
Just a funny story on the subject.
That’s a funny story. If I were him I’d be constantly worried somebody is going to mug me lol.
Interesting you would mention that. There’s a burgeoning security business in Denver right now. Security teams are transporting cash and cannabis, along with providing protection for wherever the cash is stored by the business owner. It’s definitely an issue and opportunity.
Cra does not accept cash so he would have to pay his taxes at a banking institution. no counter service at CRA.
It’s like the 60s again, everybody smokes, then realize it kills brain cells. Looks at Justin bieber, will smith son, even Miley Cyrus. In the meanwhile the government will stand to make tons of profit
Kids should definitely not be smoking pot. It’s too bad when the government takes advantage of teenagers and get tax revenue from them.
I’m holding about 500 shares of Canopy and around 200 of Aphria – Grand total of around $1500
I was pleased to see that others saw in Canopy what I did
Never have I ever purchased stock – so I figure to introduce myself with the riskiest option I could.
I used ‘extra’ money – so I’m not overly concerned with losing it – my intention is to let it ride
I brought 1000 shares . I certainly hope it reaches beer consumption status
10,000 shares here, sold my shares of ATVI and switched over, the company looks solid and considering snoop dogg allowed them to pay him with shares i think it is a good sign for when it becomes legal.
Wow, all you guys must be doing so well right now! 😀
[…] in July, one of the more risky stocks that I bought last year, Canopy Growth Corp (CGC), made its transition from the smaller Venture exchange to the larger Toronto Stock Exchange. This is […]
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Canopy has returned over 280% for me. That was when it was Tweed(.40/share). It Rocks. Also Organigram and Aurora have made BIG returns. It will Go Crazy until April 2017 when Legalization is due to hit. get in now! IMO.
That’s great JoJo. Well done! It’s up 100% for me. 🙂 If only I had bought more, lol.
[…] this obviously creates opportunity for investors too. For example, last year I blogged about buying some shares in Canopy Growth Corp, a supplier of medicinal marijuana. So far the stock has doubled in price! Not bad. […]
[…] a year ago I wrote about buying 300 shares of Canopy Growth Corp (CGC:TSE), a marijuana producer and distributor. It caught my attention because in 2015 Canopy […]
must be laughing all the way to the bank now!
ETF (HMMJ) or individual stock? RRSP or TFSA. I’ll probably stick to Canadian WEED stock (TFSA) or invest in HMMJ through RRSP. Either way, it’s best to take advantage in investing in marijuana industry.
[…] 2015 I wrote about buying $WEED stock and deduced that the marijuana industry was going to the moon. $WEED is up 800% since then. 🙂 […]