Businesses that operate in the cannabis industry make up one of the most rapidly growing segments of the North American economy. Medical marijuana alone accounted for more than $4.7 billion of business in 2016, and the figure is expected by industry analysts to rise steadily to more than $13 billion by 2020. In the meantime, sales of recreational marijuana added up to nearly $3 billion in 2016 and are expected to be as much as $11 billion in 2020. Thanks to the promising revenue stream and rapid expansion across a growing number of states, allied with diversified product offerings and industries, marijuana now provides an attractive opportunity which investors would be foolish to ignore. Until now, there has been minimal participation by investors in the market for legal cannabis. Is this likely to change in 2018? If so, what do investors need to know before they take the plunge?
Investors in Pot Unmoved by Jeff Sessions’ Change in Marijuana Policy
Major news outlets rang the alarm bells this month following the decision by US Attorney General Jeff Sessions to repeal the Cole Memo, with the Associated Press running the headline ‘Marijuana investors skittish after Sessions’ shot at pot’ and Bloomberg leading with ‘Pot stocks plunge on report U.S. to rescind expansion policy.’
The Cole Memo, which is a Justice Department guidance issued by the Obama administration, formed a big part of the legal basis of the legal marijuana industry in the country. Most state legislators used the memo to help craft their respective cannabis regulations to comply with laid out federal guidelines. It therefore came as little surprise that Sessions’ decision, which came a few days after California legalized recreational marijuana, has caused worry among pro-cannabis proponents.
However, for a large number of investors already working in the industry, the rescission of the Cole Memo does not change anything. According to marijuana investor Ryan Ansin, who is the Managing Director of Revolutionary Clinics and head of the Family Office Association, Sessions decision does not alter the state of marijuana laws in the United States.
Canadian Investors Leading the Way In 2018
The long lines by eager buyers looking to purchase pot as well as a new ETF caused Canadian marijuana stocks soaring into 2018. Although there are few Canadian marijuana companies that operate directly in the US market, the brisk sales stateside might be an indicator of things to come when the country makes the sale and consumption of the drug legal by July.
There are few industries within North America that exhibit the kind of growth or consistency evident in the legal marijuana space. However, it is worth noting that, despite its larger market, the US still trails Canada when it comes to the development of this market segment. There are a number of factors behind this phenomenon which we will explore.
Why the Canadian Cannabis Market Is Currently More Attractive Than the US
Starting with the basics, Canada made medical marijuana legal long before the US, with the country allowing medical weed to be sold legally from way back in 2001. That being said, it is only until the last few years that the industry has really found its footing and thrived thanks to the oversight provided by Health Canada, which is a regulatory agency analogous to the US Department of Health and Human Services.
Another contributing factor has been the political differences evident when comparing the US government and the Canadian federal administration. In Canada, a majority of parliamentary seats are held by progressives, with most of these left-leaning lawmakers strongly in support of the expansion of both recreational and medical marijuana. In comparison, the legislative branch of the US government is controlled by Republicans, of whom only 51 percent support the legalization of pot.
In addition, Canada taxes legalized recreational cannabis very differently to how the US government does. Canada has set the rates of taxation on weed relatively low, while ensuring provinces take responsibility for front-line regulation of the industry and receive a sizeable portion of the revenue, allowing recreational marijuana to thrive.
American Investors Hot on the Heels of Their Canadian Counterparts
Before Sessions made his announcement, all of the major indicators focused on the marijuana industry were not only showing growth; they were constantly posting record numbers from one day to the next. The MJIC North American Marijuana Index rose by 32 points before the announcement and before dropping sharply. However, it quickly rebounded the following day, gaining 28 points and almost wiping out any losses occasioned by the Justice Department memo. While many experts will rightly point out the significant risk involved in the marijuana trade, it also has the potential for equally high rewards. If there is anything to be learned from history, there are few things Wall Street loves as much as a good risk.
Another factor that points to a promising future for marijuana investment in the US is the fact that the growing acceptance of marijuana, for medical and recreational purposes, is fueling an expansion in the industry. In the five years leading up to 2017, the marijuana industry in the United States has experienced phenomenal growth in revenues due to the enactment of favorable legislation for the growth and distribution of the drug for medicinal use. Furthermore, the cannabis trade has been boosted by the passing of legislation in several states, making the use of marijuana for recreational purposes legal.
Although the regulation of the cannabis industry is far from consistent across the nation and still remains contentious since the federal government still classifies it as a Schedule I controlled substance, these laws and regulations are expected to be increasingly loosened by 2022.
A Review of the Major Players in the Growing Canadian Weed Industry
The Canadian recreational and medical marijuana market is an interesting one, since it contains a handful of major players who control approximately half of the country’s weed market. These companies include Terra Tech Corp (OTCMKTS:TRTC), Aphria Inc (OTCMKTS:APHQF), Medical Marijuana Inc (OTCMKTS:MJNA), Cannabis Science Inc (OTCMKTS:CBIS) and EVIO Inc (OTCMKTS:EVIO) who each control either a high single-digit percentage, or a mid double-digit percentage share of the marijuana trade.
- Terra Tech Corp (OTCMKTS:TRTC): This company has started 2018 on a bright note, experiencing a massive surge in its share price starting December 2017. Its share price jumped a massive 225% from $0.20 at the start of December to more than $0.45 at the turn of the year. The price surge has been aided by high turnover during the month, closing at almost 80 million shares traded, its best performance since its inception.
- Aphria Inc (OTCMKTS:APHQF): This company is, without a doubt, a unique success story within the legal cannabis industry and it continues to exhibit massive growth potential. Its solid financial position can be attributed to a strong portfolio of innovative products. In 2017 alone, the Aphria Inc. stock rose by over 150% and the company seems poised to continue on its upward trajectory in 2018, as Canada continues to inch towards the legalization of recreational marijuana.
- Medical Marijuana Inc (OTCMKTS:MJNA): Medical Marijuana Inc. operates as an investment and holding company with its primary focus being the medical marijuana market. It comes as little surprise to analysts and investors in the marijuana space that the company’s share price is continuously rising, considering 2017 and December, in particular, were very positive for the company.
- Cannabis Science Inc (OTCMKTS:CBIS): The recent aggressive extension drive by Cannabis Science Inc. has been the key factor driving the firm’s shares from a nickel each to over a dime in the first few days of January 2018. In addition to its attempts to get into the Blockchain bandwagon, the company is also positioning itself to take advantage of the legalization of marijuana for recreational use in California.
- EVIO Inc (OTCMKTS:EVIO): The company is a classic turnaround play; 2017 was a bad year for EVIO, with its shares steadily declining during the course of the year. However, as the year came to a close, it dramatically came back to life, with its value almost doubling in a week in December, from $0.60 to $1.15 a share. Its outlook is also looking positive for 2018, making it an ideal choice for speculators.
Is Pot Worth the Investment?
While Jeff Sessions may be looking to start a renewed war on marijuana, statistics show that a significant number of Americans do not share his view. A report from the Pew Research Center indicates that 61 percent of Americans believe that marijuana should be legalized, with only 37 percent with an opposing view.
If there is support from the public, and if investors continue to rake in the profits from the cannabis trade, the battle is already half won. Without a doubt, the industry still has a battle to fight, but it would appear that the push toward making legal marijuana as profitable as a financial investment, will ultimately take the day.