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.