No regulated market on Earth in the last year has grown as much or as fast as the market for legal cannabis.
Not smartphones or software, not automotives or aerospace, not biotechnology, real estate, gold, oil, software… nothing. I came out months before the landmark Nov. 8, 2016, election – urging folks to get in on the pot stock boom.
I predicted the vote would be historic.
I also predicted a big chunk of states would vote to legalize cannabis – and create a huge windfall for tiny pot stocks.
Well, that’s exactly what happened in the original Roadmap to Marijuana Millions Report that we released on Sept. 2, 2016.
Folks made thousands upon thousands of extra dollars – the payoff was enormous. A small stake in this red-hot market made many investors instant millionaires.
Those people should be congratulated for going with their gut – being bold – and making the move to invest in marijuana.
I’m sure they’re “feeling the love” at home and among their friends and colleagues.
So now, after all that, I’ve taken another look at legal marijuana – purely as a market analyst. When it comes to cannabis, all I care about is this: Can investors still make money in this market? And the answer is yes – and tons of it.
A lot of people stood on the sidelines during the first phase of marijuana legalization. But because you’ve joined Wall Street WatchdogsN, you won’t miss this next phase.
Let me show you why that’s true…
When Laws Pass… Stocks Soar
As recently as 2013, legally sanctioned “medical marijuana” was worth about $1.5 billion in U.S. sales.
But in 2017 – when more than half the states
have some form of legal medical or recreational use laws – the cannabis sector
was worth $10 billion. That’s 567% growth in barely three years.
And it will be worth $40 billion by early next decade… and $100 billion by 2029 – 1,308% growth in a little more than 10 years.
That would make the legal cannabis market larger than the current U.S. market for soda. Americans bought $76.4 billion in soda in 2017.
|“We’re starting to see a shift from ‘marijuana people’ getting into business to… business people getting into marijuana.” – Dan Riffle, The Marijuana Policy Project|
Amazingly, those huge numbers hide the fact that this market is a market still in its infancy. After all, marijuana is still illegal in much of the United States.
For that reason, there’s no accurate way of really knowing just how big this market could ultimately be.
Some estimates place the number of sometime marijuana users in the neighborhood of 50 million people. As many as
7.6 million indulge on a daily basis.
Clearly, those are huge numbers. Yet as more and more places legalize cannabis, this market could boom into the stratosphere – especially now that we’ve entered the next phase of marijuana legalization.
So you don’t want to miss that historic opportunity.
|MILLIONS OF MILLENNIALS CLAMOR FOR CANNABIS The 83.1 million millennials are some of the most vocal and adamant supporters of legal marijuana. Fully 70% of them want cannabis to be legal and available. In fact, a July 2015 study out of Denmark revealed that millennials in that country now prefer marijuana over alcohol as their recreational substance of choice. The millennial cohort is between 19 to 35 years of age. They’re going to be around for a long time, propelling the drive toward full legal acceptance of cannabis.|
However, that’s not all that’s happening in the world of legal marijuana.
Far from it…
This next phase also includes new legislation about to hit in the United States.
The momentum is stronger than ever to legalize marijuana. Up to 16 new states could legalize it in 2018. Remember the pattern: When legalization is on the ballot, cannabis stocks soar.
So, let’s look at why this market is exploding in the first place…
Weed and the “Will of the People”
On Nov. 8, 2016, as you well know, voters in nine states decided on whether to legalize marijuana.
And for investors who bought big into pot stocks, the results were stellar.
in California, Maine, Massachusetts,
and Nevada voted to legalize the
recreational use of marijuana. And voters in Arkansas, Florida, North Dakota, and Montana passed ballot initiatives legalizing medical marijuana. (Only
people Arizona, where
recreational cannabis was up for a vote, decided
That means cannabis is now legal, at least for medical and in some cases for recreational purposes, in 29 states and Washington, D.C.
Let that sink in for a minute…
Following this election, 2016 is likely to go down as a watershed year for the marijuana industry.
“This is the most momentous Election Day
in history for the movement to end marijuana prohibition,” Rob Kampia, the executive director of the Marijuana Policy Project, said. “From Los Angeles to Boston, voters are casting their ballots in favor of sensible marijuana policy reforms.
Today’s results are right in line with national polls showing record-high support for making marijuana legal.”
California, of course, was the heaviest domino to fall in November’s “Green Gold Rush.”
When the state went live with full legalization
–and became the biggest individual market in the U.S. immediately – on Jan. 1, 2018, it was the
biggest catalyst the cannabis industry has ever seen.
Twenty years after it became the first state to legalize and regulate medical marijuana, California’s “Yes” vote on recreational pot sends a clear signal to the federal government – and the rest of the nation. Proposition 64 now allows adults over the age of 21 to use, possess, and transport up to an ounce of marijuana for nonmedical purposes, and to grow as many as six plants.
Some are calling California, with its population of 39.1 million, the national “tipping point” in the
battle to end the prohibition on pot. It will accelerate the acceptance of marijuana and fuel the growth of the entire industry.
The results in California and Massachusetts represent an “epic outcome,” said Todd Palmieri, the CEO of Tradiv, a cannabis analytics platform.
As expected, the overwhelming national vote for legalization supercharged marijuana stocks. Since then, I’ve seen individual weed stocks across the market zoom as much as 1,588%, 1,474%,
630%, 436%, and 416% at their peaks.
|A “BABY BOOM” IN LEGAL WEED According to the U.S. Census Bureau, by 2030 one fifth of the population – 72 million Americans – will be 65 or older. Those Baby Boomers will all confront a slew of age-related ailments, such as glaucoma, cancer, arthritis and back pain. As it happens, cannabis-based remedies are uniquely suited to treating those diseases. So as the elderly population grows, so will the size of the medical marijuana market. Social acceptance of cannabis will grow as well, as millions of people discover the benefits of medical marijuana for themselves.|
And now that the dust surrounding the election has settled, we’re seeing more states legalize cannabis through their legislatures – and a growing chorus of voices demanding that cannabis be legalized once and for all at the federal level.
Let’s take a look…
From Coast to Coast
In 2018, a record 16 states could legalize marijuana. That’s double the number of states that legalized it in 2016.
The estimated adult population of these 16 states
is nearly 61.4 million.
That means up to 61.4 million new customers are about to enter North America’s legal
See the accompanying Landslide Windfalls for
2018 report for a rundown on all 16 states considering legalization this year.
Americans’ support for marijuana legalization reached record high levels of 64% in Gallup’s most recent poll in October 2017. Just think, in 1995, that level of approval was at about 25%.
Even more instructive of the shift in public opinion, the latest Gallup poll shows Republicans’ support for legalizing marijuana reached a majority — 51% — for the first time ever in 2017.
Independents’ support is at 67% and Democrats’
support is at a whopping 72%.
For a snapshot view of how this unstoppable trend is developing, look to Maryland, which allows medical marijuana and began decriminalizing adult-use recreational cannabis in 2014.
The Washington Post reported in June 2017 that “Cannabis sales in Maryland would total $9.7 million the first year, likely starting in mid-2017, and reach $60 million by 2020. Those projections will increase as Maryland loosens restrictions.”
There’s a very interesting wrinkle to this story.
You see, when Maryland began accepting application for marijuana licenses, in order to
make the process fair, they concealed from the reviewers any personal information that could reveal who was applying.
The Post’s story revealed that “The people lining up to profit from Maryland’s legal medical-marijuana market include former sheriffs and state lawmakers, wealthy business executives and well-connected political donors.”
In other words, it isn’t your stereotypical “stoner” who’s lining up to get a piece of the cannabis pie. The industry is attracting men and women who are upstanding members of the community.
This “mainstreaming” of marijuana is also happening in Massachusetts.
During the Nov. 8 election, Massachusetts approved legal use of recreational marijuana, making it one of the first states to approve weed for medical and recreational use.
The Boston Globe reported in March 2017 that legal weed in that state could bring in as much as $1.17 billion in revenue. And just like in Maryland, marijuana’s proponents are drawn from the very heart of the mainstream.
On Jan. 1, the first day marijuana could be sold to recreational users over the age of 21, a line of nearly 500 customers snaked out the front door of [Hank Borunda’s] Greener Side dispensary. He raked in $47,000 in 24 hours; within three months, he says, he grossed $1.5 million. – People Magazine And in the Capitol
Of course, we must acknowledge the elephant in the room – the federal prohibition of marijuana and its status as a Schedule 1 drug. That means the feds treat cannabis like heroin, cocaine, and LSD on the national level – and makes it hard to research.
But there’s been some movement on that front in just the first half of 2018 – though not all in the
|GETTING WEED ON SCHEDULE Probably nothing will have as big an effect on the legal-marijuana industry as the reclassification of cannabis. Here are five things the government looks at before rescheduling a sub- stance: The drug’s chemistry must be known and reproducible.Adequate studies must be per- formed proving the drug is safe.Adequate studies must be per- formed proving the drug does what it’s supposed to do.The drug must be accepted by “qualified experts.”All evidence for these claims must be widely available. Source: New Frontier Data|
In early January 2018, as California went fully legal,
U.S. Attorney General Jeff Sessions rescinded a portion of the Cole Memo. That’s the executive branch-level ruling that had shielded legalized states from federal scrutiny. Sessions’ move left federal prosecutors free to once again go after cannabis operations in legalized states.
That threw the whole idea of legalized marijuana in the United States into a temporary state of uncertainty.
Then on April 13, 2018, Sen. Cory Gardner (R-Colo.) announced he and President Donald Trump came to an agreement to end federal-level crackdowns on marijuana in states that have legalized it.
Gardner had been miffed since Sessions’ move in early January. In response, he started refusing to allow
- Department of Justice nominees to pass through the U.S. Senate.
But Gardner’s agreement with Trump changes all that. Gardner says the president has agreed to support federal legislation to allow states to regulate cannabis without fear of federal interference – and the White House has confirmed that. In return, Gardner will now allow the DoJ’s nominees to go through again.
Pot stocks responded immediately…
The bellwether Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ) rose 9.2% from its low on April 13 following Gardner’s statement.
Gardner then announced shortly thereafter he was reaching across the aisle to join Sen. Elizabeth Warren (D-Mass.) in sponsoring a bill to allow each state the option of legalizing recreational or medical cannabis, or not.
Their bill is a companion the Cannabis States’ Rights Act that does similar things in the House of Representatives. Trump ally and longtime marijuana legalization proponent U.S. Rep. Dana Rohrabacher (R-Calif.) introduced the new bill that he says would enshrine “restraint on federal enforcement.” The bill would also loosen restrictions on conducting scientific research into the medicinal effects of cannabis.
Meanwhile, Senate Majority Leader Mitch McConnell (R-Ky.) fast-tracked a Senate bill to legalize industrial hemp – medical cannabis’ low-THC-level cousin. And Senate Minority Leader Chuck Schumer (D-N.Y.) said he will support it.
Schumer also says he’s going to introduce a bill to entirely “de-schedule” marijuana from its federally prohibited status.
Also, former House Speaker John Boehner (R-Ohio) announced in April 2018 that he’s joining the advisory board of Acreage Holdings, a company that cultivates, processes, and dispenses cannabis in 11 states.
In March 2018, a bipartisan group of senators introduced the SAFE Banking Act. According to the bill, a depository institution would not be liable or subject to forfeiture under federal law for providing a loan or other financial services to a legitimate marijuana-related business.
Finally, in February 2017, Rep. Rohrabacher and three of his House colleagues formed the Congressional Cannabis Caucus. That bipartisan group has been fertile ground for needed support.
Taken in total, the momentum building in favor of legalized marijuana nationwide is undeniable.
Change is coming… and those pioneer investors who get on board early – while others fret about potential risks – are going to feel like they have a license to print money with every passing pro-weed law.
Then, there are two unprecedented catalysts about to push the market for legal marijuana further into the mainstream and up into the jet stream…
The “Smart Money” Is Moving Into Cannabis
In 2016, $215 million in venture capital flooded into the marijuana industry.
This cash went toward farms and dispensaries, weed technology, and real estate… every nook and cranny of the pot business.
|“These are exciting times, and new millionaires and possibly billionaires are about to be made.” – Troy Dayton, ArcView|
One innovative firm called ArcView Group, out of Oakland, Calif., even matches up smaller angel investors to early stage marijuana companies.
I’ve been speaking at length with Troy Dayton, ArcView’s CEO.
He’s told me he has raised $73 million for 116 startups. And time and time again his firm has gotten people into pre-IPO marijuana startups well before billionaire venture capitalists staked their claim.
Then there’s Privateer Holdings, which invests in privately held cannabis startups and today has a valuation of $425 million.
“We’re investing because we think it’s a great business,” Privateer Holdings CEO Brendan Kennedy
recently told CBS News.
Privateer’s portfolio includes Leafly, a cannabis information platform; Tilray, a Canadian grower; and
Marley Naturals, a marijuana products developer created by the family of Bob Marley.
In April 2017, Privateer Holdings caught the attention of venture capital legend and billionaire Peter Thiel, the cofounder of PayPal (and an early investor in Facebook, LinkedIn, SpaceX, Airbnb, and Yelp).
Thiel became the main player in a
$75 million Series B funding round for Privateer Holdings.
Even more conventional and institutional players are taking a close look at this opportunity.
In 2015, Bank of America Merrill Lynch released a blockbuster report called “Medical Cannabis Has High POTential,” which was the first report by a major investment bank to make a clear-eyed analysis of such a major segment of the marijuana market.
New Frontier, a leading cannabis research guide, captured the true significance of this report: “It established beyond doubt that leading financial market players are paying attention to the industry and exploring potential points of entry for their clients.”
Of course, the action isn’t happening in just the United States (and Canada)…
Oxford University announced in March 2017 that it has launched a £10 million research program to study cannabinoid-based therapies for acute and chronic health conditions. Free of U.S. government handcuffs – which continues to list marijuana as a Schedule I drug along with the likes of heroin – this study is going to be an absolute game-changer for those who still have reservations about medical marijuana use.
“Cannabinoid research has started to produce exciting biological discoveries and this research programme is a timely opportunity to increase our understanding of role of cannabinoids in health and disease,” said Ahmed Ahmed, professor of gynecological oncology at Oxford. “This field holds great promise for developing novel therapeutic opportunities for cancer patients [and others].”
The research could position the United Kingdom at the forefront of one of the fastest-growing industries in the world right now. Oxford and Kingsley Capital Partners will host the first International Cannabinoid Biomedicine Conference late this year.
Mind you, results will take time to produce. However, marijuana opponents will undoubtedly find it daunting to call the credibility research from such a prestigious university into question without looking foolish themselves.
Investment in the legal marijuana industry has not been robust in the world’s most populous nation. But hat hasn’t stopped ChineseInvestors.com from rushing toward the biggest opportunity in a generation.
The company, whose main focus has been on tech-based media, went live with the website ChineseCBDoil.com in recent weeks. The site aims at the yet-unserved Chinese-speaking market of 2 billion people.
It will start out marketing hemp oil and “related products” that are legal in China and much of the
ChineseInvestors has also completed design for a “Yelp-styled” language mobile app.
“This is not only the first mobile
application that provides
a platform for Chinese people
to review and discuss various cannabis products,
but also the first marijuana
social media mobile
application designed for
Chinese speakers,” CEO Warren
Wang said. “China’s large population affords an
Its hemp-based products are derived from a different plant than marijuana. But the company hinted that it might market marijuana-based products in the United States once the federal government reforms cannabis laws or at least clarifies the position of President Trump.
As such, ChineseInvestors is keeping its primary base of operations in Shanghai, though it also has a
California address listed.
Even Hollywood celebrities are getting into the act.
Many folks already know about the weed-related business activities of rapper Snoop Dogg, country music legend Willie Nelson, as well as actor and comedian Tommy Chong.
Fewer know that Grammy Award-winning singer Melissa Etheridge developed her own line of cannabis-infused wine… and that Whoopi Goldberg launched a line of medical marijuana products aimed at women.
Growing Like Weeds – The New Generation of Cannabis Stocks
No doubt sorting through all the potential cannabis opportunities can be a daunting task for any investor. But here’s the good news for you…
I’ve spent well over a year exhaustively researching every aspect of this market, literally examining hundreds of potential companies.
I have very strict criteria about which ones we were willing to recommend.
And ultimately, I’ve whittled it down to what I believe are the best ways – bar none – to invest in the exploding cannabis market… many of them penny stocks trading for $1 to $2.
My research shows they have the greatest potential growth for pot stocks in the United States.
These are the companies with the biggest upside. Every pot stock investor should
seriously consider these.
Let me be clear: These companies aren’t ragtag start-ups being run by bong-smoking potheads wearing tie-dye shirts and sandals.
These are advanced Silicon Valley-like firms led by brilliant, savvy and highly ambitious entrepreneurs. All are publicly traded companies I predict could soar during this next wave of legalization.
So, if you put just a couple hundred bucks right now into a few of these stocks, it could earn you once-in-a-lifetime windfalls.
And even if they don’t take off
on their own, there’s another way you can profit.
You see, once legalization takes hold everywhere, dozens of already established firms – in the tobacco industry… in agriculture and irrigation… in pharmaceuticals – are going to want to jump in without hesitation.
Their most logical move will be to go on a buying spree, and gobble up smaller firms that already have expertise in a particular segment of the market – for example, in marijuana “edibles.”
So it’s entirely possible that within a few short years we’re going to see a frenzied period of market consolidation.
And if that happens, investors who buy into the best small cannabis players now are going to be richly rewarded indeed.
LEGAL WEED IS AN UNSTOPPABLE GLOBAL TREND
America is far from the only country poised to loosen the reins on marijuana. Here are nine countries that are leading the way.
- Israel – Has already approved a wide array of cannabis-based treatments for cancer,
epilepsy and MS.
can grow and
consume cannabis; they
are forbidden from
transporting or selling it.
- Mexico – President Enrique Pena Nieto signed legislation legalizing and regulating medical marijuana into federal law this spring.
- Australia – It started in 2017 awarding licenses to growers and dispensers of medical marijuana.
- Uruguay – Became the first country ever to legalize the sale of marijuana, but so far the legal market lags behind the “homegrown” market.
- Jamaica – Has decriminalized possession of up to two ounces of cannabis, and now regulates cultivation for medical and religious purposes.
- Germany – Possession is illegal, but consumption is legal. Also, scientific institutions can cultivate and possess cannabis, and pharmacies can sell cannabis-based treatments with government permission.
- Colombia – Since 1994, possession of up to 22 grams for personal use has been legal. On Dec. 22, 2015, President Juan Manuel Santos signed a decree “legalizing the cultivation, consumption, export, and import of cannabis strictly for medical and scientific purposes,” according to ArcView.
Which big companies do we see getting into the marijuana mix?
Further on in this report we’re going to examine several of them – companies we believe are most likely to invade the marijuana space once it begins to take off.
Now, aside from early investors, the most obvious beneficiaries of a “new weed regime” will be the entrepreneurs who actually grow marijuana. But they are far from the only ones who will profit.
A whole ecosystem is springing up around cannabis.
I’ve identified no fewer than seven distinct sub-segments of this ecosystem. They are…
• Marijuana Growers…
- Marijuana Technology…
- Marijuana Edibles…
- Weed-Based Wonder Drugs…
- Banking and Venture Capital…
- and Mega-Cap Moves Into Marijuana.
And I’ve “smoked out” what I believe to be the best stocks in each of those groupings.
Now, the marijuana ecosystem is only just emerging fully into the mainstream. As a result, many of the companies I’m going to introduce you to here are microcap stocks. Many are new and have yet to develop any kind of market “track record.”
Bear in mind that stocks traded over the counter by their very nature are not as liquid as those on major exchanges. I always tell investors that when putting money into these kinds of stocks, they should only invest funds they can afford to tie up for an extended period or that they can afford to lose altogether.
That’s true of most of these stocks, but not all of them. Some of the most promising stocks in the marijuana space might be familiar to you.
A few of them are household names.
Given that these stocks cover more than one level of valuation and capitalization, I’ve broken them down further, into three “tiers.”
In Tier 1 you’ll find diversified companies that give you a “backdoor” way to play the unstoppable marijuana trend.
Given their market cap, these
stocks are less likely to turn into “moonshots.” But don’t be fooled. With legal
marijuana the fastest-growing industry in the United
States, these stocks could rise by triple-digits.
What’s more, because these firms are more mature and highly capitalized, you’ll be spared much of the volatility that bedevils all small- and micro-cap stocks.
All Tier 1 stocks trade on major exchanges.
And as a rule, all Tier 1 stocks have an average three-month trading volume exceeding 50,000 shares per day. Some even pay dividends, which means you can get paid to hold quality stocks in the world’s fastest-growing industry.
Tier 2 stocks are not a highly capitalized as Tier 1 stocks.
They’re more speculative, but are still early enough in their life-cycle that a smart investment here could hand you triple- or quadruple-digit profits.
These are the ones you’ll find trading over the counter (OTC). Like Tier 1, these stocks have a three- month average trading volume greater than 50,000 shares daily.
And while these stocks are technically “penny stocks,” none makes it onto Tier 2 without having a share price greater than 25 cents.
Finally, there’s Tier 3. These microcap stocks are more risky and volatile than what you’ll find in the other two tiers.
Stocks in Tier 3 can be traded OTC. And they’ll be included on the list provided they have a three- month average trading volume greater than 15,000 shares daily and a share price greater than 25 cents.
They are also the stocks with the greatest potential for growth. These are the ones that get you onto the lowest of the “ground floors.”
Tier 3 is where you’ll find your next 1,500% gainer. I’ve seen it happen with a couple of Tier 3 weed stocks I recommnded in September 2016. I’ve seen other penny pot stocks post gains exceeding 8,000% or 16,000%, though those peaks were very short-lived.
If even a handful of the Tier 3 stocks come through in any kind of similar way, then you are guaranteed a fortune. That’s what’s available to you today from legal marijuana.
That said, it bears repeating that because of things like low trading volume, competition, and the uncertain landscape, Tier 3 stocks are more than normally volatile. Please keep that in mind. If you are particularly averse to risk, then you should think very carefully before investing in a Tier 3 stock.
We’re going to dive into all of these stocks now, segment by segment. Our
journey starts where the entire market for marijuana does – with the marijuana
MARIJUANA ECOSYSTEM #1
It all starts with the “growers.” They plant the seeds, harvest the crop, and send their produce through the value chain of the marijuana market.
Gone are the days when small groups of “stoners” planted their seeds in vacant lots and in tiny pots and window boxes on the upper floors of tenement brownstones. Today’s marijuana producer is a sophisticated, educated player in the “agribusiness” community.
In Colorado in 2014, more than 320,000 plants were cultivated each month, according to the Colorado Department of Revenue. More than 148,000 pounds of marijuana flower was legally sold.
More and more growers are scrambling to get their crop to market and supply what looks to be a bottomless demand.
And the party’s just getting started.
It is entirely likely (some would say inevitable) that within a few short years the number of states where cannabis is completely legal will more than triple. And the day may come when all 50 states will at least allow medical marijuana.
When that happens, the scale of cultivation will rise exponentially. “First mover” companies like CannaGrow in Colorado and three of the most notable growers in Canada that operate multi-acre fields will reap huge rewards as the cannabis market explodes more than 3,400% – to as high as $150 to $200 billion.
Because so many savvy players see such an enormous upside for cannabis, the plant has attracted the attention of some innovative researchers. One company, 22nd Century Group, is transplanting cannabis DNA into tobacco plants. The goal? To create a hybrid with the properties of cannabis and the robustness and ease of cultivation of tobacco.
And there’s a segment of the cannabis market that is easy to overlook – the hemp market. Hemp is a cannabis plant that has none of the THC that gets people high. Hemp clothing is durable and lightweight. Hemp plants are healthy food for livestock. The oil from hemp makes very useful waxes and resins. It can even serve as a key ingredient in plastics and biofuels.
Some estimates peg the global hemp market at more than $800 million. And again, that’s in the face of cannabis’s quasi-legal status.
But that status could soon shift if Sen. McConnell’s bill passes. “We all are so optimistic that industrial hemp can become sometime in the future what tobacco was in Kentucky’s past,” McConnell told the press when he announced his legislation.
The law would make hemp legal according to federal law, and remove restrictions on banking access, water rights and other barriers hemp farmers face each day.
Another exciting facet of cannabis cultivation is the explosion of
high-tech greenhouses (or “grow houses”)
designed specifically to accommodate marijuana.
These enterprises are a boom to the makers and suppliers of all manner of high-tech electrical and mechanical apparatuses. We’ll discuss that in more detail a little later.
First, let’s take a look at some of the key marijuana cultivators operating today. Any one of them could potentially soar 1,000% or more in the coming years.
Canopy Growth Corp. (OTC: TWMJF)
It’s called the first-mover advantage. The first firm to establish a strong base of business in a young and fast-growing market can reap major benefits. Strong market share, economies, of scale and strong profit margins are the usual end result.
Recreational legalization is great news for Canopy Growth Corp. (OTC: TWMJF), which will clearly have a first-mover advantage. The firm already has the largest market share of the country’s medical legal cannabis market (at 25%) and plans to dominate the recreational market as well.
It’s done so well that the Toronto Stock Exchange (TSX) made Canopy the first marijuana stock on its exchange, allowing it to use the moniker “WEED” for trading.
In March 2017, the Smiths Falls, Ontario-based grower agreed to be included in the prestigious S&P (Standard & Poor’s)/TSX Composite Index. It is the first weed-related business added to the index.
And in March 2018, CEO Bruce Linton said the firm would uplist to Nasdaq “in due course.”
I love Canopy because it excels in two important areas things that should make it perfectly positioned as Canada goes totally legal.
The first thing it does really well is research and development. No other cannabis company comes close to them in terms of R&D.
They have the most modern, scientifically honed and data-driven growing cannabis operation I’ve ever seen.
Much of it is grown indoors in automated, state-of-the-art, climate controlled spaces. And their facilities are huge – maybe the largest in the world at this point.
The second thing I love about them is their leadership is very savvy at strategic acquisition.
To be clear, a growing market will invite ample competition. In response, Canopy Growth is sharply boosting its production capacity.
It has been gobbling up some of Canada’s best-known weed companies in an
effort to create a single online marketplace – one capable of selling everything
from medical marijuana and edibles to cannabis oils and seeds for home-grown
Canopy has thus far snatched up North American rivals such as Mettrum Health Corp., Bedrocan, and Tweed. All of these had a strong reputation among medical marijuana users. For example, in 2016, Bedrocan alone boasted a base of more than 20,000 medical marijuana users.
Those deals helped push Canopy’s 2016 sales to $12.7 million (CAD). But that’s just the beginning.
Further deals helped triple sales to $39.9 million (CAD) in 2017.
In April 2017, it announced the purchase of Saskatchewan-based rTrees, which has a 90,000 square- foot indoor growing facility under construction. The site also has room for an operation more than 300% that size.
In December 2017, the firm inked an agreement with the Newfoundland and Labrador government to build a $55 million production plant that would generate 12,000 kilograms of cannabis per year for the province’s supply by the fall of 2019. As fertile as the Canadian cannabis market is, it’s not as simple as opening a retail storefront or a mail-order operation. The firm already grows its own pot and has developed deep ties with the medical community. By the company’s count, it has met with more than 10,000 doctors to discuss the merits of medical pot.
Canopy is a leader in the production of a range of cannabis oil extract, a key by-product that is used to make pot edibles. This fast-growing niche is almost as large as the smoking category in Colorado and should be that large in Canada as well.
The focus is on quality as much as on quantity. Canopy Growth has partnered with DNA Genetics, a Dutch firm that is consistently ranked as producing the industry’s most coveted strains of pot. The two firms intend to combine their production and research know-how.
Canopy Growth has always looked to spread its bets around. For example, it bought a 33% stake in CannScience Innovations Inc. (CSI), which plans to build a base of patents around THC extraction processes, ways to produce standardized products, and new formulations that can be used in medical and clinical setting.
And the firm is venturing into global markets such as Australia, which recently legalized medical marijuana. Australian start-up AusCann will use Canopy Growth’s expertise as it launches a major new growing facility. Canopy gained a 15% stake in AusCann as part of the deal.
On April 15, 2018, Canopy signed papers to acquire for $2.5 million (CAD) Annabis Medical, a leader in the Czech Repbulic’s medical cannabis industry.
The firm has also signed a partnership and supply agreement with Spanish pharmaceutical firm Alcaliber SA. Canopy has also partnered with Spectrum Cannabis Denmark ApS to cultivate cannabis in a 40,000-square-meter greenhouse in Odense, Denmark.
And in mid-May 2018, Canopy applied to up-list to the New York Stock Exchange, a move that’s
sure to attract the attention of institutional investors looking at cannabis
companies. The firm is well capitalized, with roughly $86 million (CAD) in cash
on the books. Quarterly sales now exceed $20 million (CAD), and the firm is now
burning less than $3 million per quarter. Look for that figure to shrink as
sales rise higher.
With Germany looking increasingly likely to expand marijuana legalization in the near future, Canopy announced its plans to acquire German pharmaceutical distributor MedCann Pharma and Nutraceuticals in November 2016.
With a highly experienced leadership team, led by Dr. Pierre Debs, MedCann has established itself as a leading cannabis importer and distributor within Germany, where the cannabis industry still relies solely on imported products.
Remember: Canopy has the largest share of Canada’s medical cannabis market and plans to dominate the recreational market as well.
Aurora Cannabis Inc. (OTC: ACBFF)
Canopy’s quest to be the king of Canadian cannabis is not without heavy competition.
Aurora Cannabis Inc. (OTC: ACBFF) sells cannabis and cannabis derivatives, chiefly cannabis oil, and has also shown a penchant for genius partnerships and acquisitions. It operates out of Vancouver.
It’s only been around since December 2015. But this dispensary is already making its mark in the cannabis market.
In fact, I call Aurora the “Amazon.com of Weed.”
You know how Amazon.com Inc. has those giant distribution facilities?
Well, Aurora has relatively similar square footage for growing, cultivating, and harvesting several different strains of medical marijuana… and it’s continually looking to expand it.
Create an account. This will grant you access to our Physician’s Portal with
exclusive materials and information on how Aurora works with you to
help patients in need
have veriﬁed you as a practicing physician we will send you a welcome
kit. Find information about medical marijuana, prescribing rules in your
Province, and how Aurora works
to create the best possible medicine for Canadian patients.
Once veriﬁed as a practicing
physician you will be able to ﬁll out our online Medical Documents. This
is a quicker and simpler process than
completing the printed forms.
It all started with a 55,000-square-foot grow facility in the foothills of the Canadian Rockies. It’s working toward the completion of Aurora Sky, an 800,000-square-foot facility in Ledoc County, Alberta, by the end of 2017.
In addition, Aurora in April 2017 completed the purchase of bankrupt Peloton Pharmaceuticals. As such, it will take over Peloton’s 40,000-square-foot facility in Quebec that is already more than 80% complete.
It’s since added Aurora Sun, a 1.2 million-square-foot facility — the company’s largest — in Medicine Hat, Alberta, that the company expects will produce more than 150,000 kg of cannabis per year. It’s harvesting pot at its new facility, Aurora Vie, in Pointe-Claire, Quebec, and setting up facilities in Lachute, Quebec.
Aurora also has a 51% stake in a 1 million-square-foot Aurora Nordic facility in Denmark.
And the company keeps on making serious moves. So far in 2018, Aurora has been very busy carrying out key strategic acquisitions and investments.
On May 1, the firm finished its purchase of CanniMed Therapeutics, Inc. The acquisition adds more than 20,000 patients and 20,000 kg per year in funded capacity, as well as new drug delivery technologies, high-margin cannabis products, and additional domestic and international distribution channels.
Aurora completed its investment in The Green Organic Dutchman, giving it the right to buy about 23,000 kg per year of organic cannabis grown in facilities in Ancaster, Ontario, and Valleyfield, Quebec. Auora owns nearly 18% of Dutchman.
The company also invested in Liquor Stores NA as a means to prepare for the adult consumer use market. Liquor Stores is already in the process of converting a number of its existing locations into cannabis retail outlets throughout Canada.
Finally, in the biggest legal cannabis deal ever, Aurora is in the process of acquiring MedReleaf Corp. (OTC: MEDFF), a Markham, Ontario-based licensed grower/dispensary of medical marijuana, for $2.3 billion in stock. The deal is going to allow the company to produce up to 570,000 kilos per year of cannabis at nine facilities in Canada and two in Denmark.
Aurora’s goal here, obviously, is to become the globe’s largest cannabis company. But it’s Aurora’s web-friendly, online infrastructure that truly sets it apart.
It’s made the process incredibly simple for patients to register, shop, and get products delivered directly to their door. You just click a few buttons on your computer – and everything is sent to you in an unmarked white box.
There’s no red tape, no waiting in line, no bureaucracy to deal with. You never even have to speak to anyone if you don’t want to. And their distribution network is a work of art.
Even Amazon CEO Jeff Bezos would be impressed.
The Canadian government has approved Aurora
for the sale of cannabis oils, which only happens after a firm passes a very stringent set of protocols.
Aurora also acts as a referral source for cannabis-savvy doctors. This is good business for Aurora… and for the doctors.
This has been critical because some doctors remain uneasy about the ethics of medical marijuana or aren’t 100% convinced it is, in fact, an effective treatment option.
These represented the biggest barrier for the fledgling Canadian weed companies. By creating essentially a weed-friendly physicians’ database, Aurora helped overcome that barrier.
This is also one of the first Canadian companies to look to a direct-to-consumer distribution network.
That helps keep costs low for Aurora, and it allows significant price savings for customers.
Aurora’s financials were very encouraging from jump. In fact, revenue was $170,000 in its first reported quarter (Q1 2016). That more than quintupled by the end of the next quarter, and by the fourth quarter, revenue exceed $2.8 million.
This was helped along by the introduction of its same-day delivery in the Calgary, Edmonton, and
Red Deer markets.
Aurora also operates one of the most celebrated weed-focused mobile apps in the world. A recent update to the app now includes a “push” feature that notifies users of new marijuana strain releases.
Already established as an upright regulated company, the full legalization of marijuana and cannabis derivatives is what’s most exciting about Aurora.
By setting up its direct-to-consumer distribution network, it is incredibly well placed to expand its operations at the very moment it becomes as legal to sell cannabis as it is to sell carrot cake.
Also encouraging is that Aurora closed the biggest (at its time) onetime cannabis capital funding round in February 2017. A group of investors paid $75 million ($2.25 per unit) for a stake in the company.
For the quarter ending March 31, 2018, Aurora reported $16.1 million in revenue, a 211.1% bump from the year prior and 37.6% more than the prior quarter.
The firm also saw a 249.2% increase in active patients over the year prior, to 45,776, thanks substantially to its acquisition of CanniMed.
But remember: For all its potential and growth, this is still a tiny company. Be aware that the ride can always get bumpy.
If you choose to invest in Aurora, remember that you can also buy shares off the Toronto Stock Exchange Venture (TSXV) market, which has more volume than the OTC market.
OrganiGram Holdings (OTC: OGRMF)
OrganiGram Holdings (OTC: OGRMF) is another of around only 40 licensed growers and distributors in Canada.
Its unique hook is that it is also a certified organic grower.
Considering the current and
future markets, this makes a good deal of sense.
Because growing organic eliminates potentially dangerous synthetic and chemical pesticides, it’s a big plus for a lot of sick and otherwise health conscious users.
Based in New Brunswick province, OrganiGram is one of the few Atlantic-side growers. Western and Pacific-region growers enjoy the benefit of more moderate year-round weather trends conducive for growing.
THE WIDE WORLD OF WEED
Gone are the days when marijuana users had to settle for a mere bag of “pot.” Today, Ivy League- trained botanists labor to produce exotic strains of cannabis for the discerning connoisseur.
Here are some the distinction and subtleties surrounding the world of “designer” weed.
Indica – These strains are said to produce a heavy, relaxing effect and are most popular with nighttime and evening users.
Sativa – is associated with an “uplifting, alert effect.” Preferred by daytime users.
Terpenes – Are found in many types of plants and flowers. These organic compounds produce the various aromas and flavors in marijuana.
Hybrid – Are a genetic cross between two or more strains of cannabis. The resulting strain can be balanced between Sativa and Indica, or could favor one strain over the other.
“Whole Bud” – Refers to dried marijuana in its natural form. Source: OrganiGram
But its location – close to Quebec, Nova Scotia, and Prince Edward Island – gives OrganiGram access to a blooming network without any significant competition. It has also made significant inroads with the first-responder and veteran communities.
New Brunswick borders the U.S. Northeast. This is important because several U.S. states on the Eastern Seaboard either don’t support medical marijuana or are far from consideration, let along passage, of recreational legalization. Patients needing it have the option of working with Canadian doctors to get treatment in the Great White North. Starting in 2018, recreational users will have the ability to buy there, too.
Medical cannabis tourism
is already a big industry, exceeding $100 billion,
and recreational is expected
to follow. There
are few places lovelier
than the eastern
coast of Canada,
especially in summer. According to figures from Mash Medical
Global Healthcare Services, more than 20 million Americans will look to go abroad for medical treatment
of some kind.
This company is delivering on its potential. OrganiGram saw increasing sales and positive cash flow by its second quarter as a publicly traded company. That is significant for a young, growing firm in any industry.
OrganiGram also has piqued the interest of major Canadian financial player Dundee Securities, which purchased $10 million worth of special shares from OrganiGram in early June 2016.
The stock was temporarily hurt by the Canadian government’s February 2016 law that allows medical marijuana patients to grow their own cannabis. However, OrganiGram rebounded to 52-week highs within a couple of months. That’s impressive resilience.
Also impressive is the willingness of its corporate officers to bet on themselves. In early 2017, CEO Denis Arsenault bought 50,000 shares of the stock on top of what he already owned.
This came in the midst of a large-scale product recall, which OrganiGram handled well by most accounts. The dispensary garnered praise from analysts and investors for getting out in front of
a potential problem. OrganiGram voluntarily recalled product after traces of two non-approved pesticides were found.
Harvests since the issue have shown no additional presence. OrganiGram also quickly offered customers account credits worth 100% of the tainted products’ value.
Like Aurora, OrganiGram trades more regularly on the TSXV market if you want to buy directly and play the Canadian dollar as well.
On May 8, 2018, the company took some of its first steps into the foreign medical marijuana market by entering a non-binding term sheet to buy up to 25% of alpha-cannabis Pharma GmbH in Stadthagen, Germany. The company plans on providing its German partner with dried cannabis flower to be converted into extracts for the German medical market.
In the first quarter of 2018, OrganiGram saw revenue jump to $1.1 million (CAD) from negative $5.7 million the quarter prior. The sales increase was helped along by more sales of cannabis oil and flower.
OrganiGram’s production capacity has grown from 5,000 kg to about 22,000 kg in the last year,
OrganiGram Chief Financial Officer Paola De Luca told Marijuana Business Daily.
The firm expects to produce up to 113,000 kg a year by the end of 2020, and has completed two major financing efforts (for $57.5 million CAD and $115 million CAD, respectively) to fuel this expansion, De Luca said.
Remember, the market cap on this company is less than $600. With stocks at this phase in their life cycle, you need to be patient and watchful. By watchful, I don’t mean check it every day. But do review when it reports its quarterly numbers. If it continues to grow and looks like its managing its growth well, stick with it.
The hope is that the company gets big enough to where you will see more institutional interest, which will help
boost it price. That’s the bet, and OrganiGram has
positioned itself with the odds in its (and our) favor.
CannaGrow Holdings Inc. (OTC: CGRW)
In many states, the debate around marijuana comes down to one question: If pot is legalized, should it be just for medicinal purposes or also for recreational purposes?
Regardless of the choice, it’s pretty clear that marijuana growers will need to establish top-flight cultivation methods, use highly secure facilities to please regulators, and operate store fronts that serve only their stated legal purpose.
To glean the needed expertise, growers can turn to CannaGrow Holdings Inc. (OTC: CGRW). The Colorado-based firm has already learned a lot about marijuana cultivation. It operates a massive five-acre facility near Boulder that uses state-of-the-art irrigation, heating, ventilation, and horticulture techniques.
In effect, firms looking to enter the legal pot industry don’t even have to worry about cultivation plans.
They can simply contract to buy some of CannaGrow Holdings’ output.
A study conducted by BOTEC Analysis found that a growing facility can produce roughly 40 grams of pot per square foot of space. That’s just one harvest, though Colorado’s abundant sunshine means that you can have multiple harvests per year, which would increase the yield per square foot.
At roughly 16,000 square feet, CannaGrow’s facility would yield 640,000 grams. That’s about 22,500 ounces, or more than 1,400 pounds of marijuana. At an average wholesale price of $2,000/lb., there’s a lot of value in the firm’s potential output.
And that’s just one facility. Once CannaGrow lines up demand for all of its output, look for the firm to break ground on more facilities, likely in the states having large and growing legal pot markets.
You would think that pot growing is as simple as planting a bunch of seeds in the ground, adding water, and waiting to harvest the buds of the plant. That’s how it worked for decades among the illegal growers in Northern California.
But as the pot industry becomes much more legitimate, consumers are demanding more potent grades while regulators want to make sure that authorized strains remain inaccessible to the general public.
So we’re now seeing a big shift toward greenhouse growers, and CannaGrow aims to be one of the nation’s largest greenhouse operators.
CannaGrow’s efforts are overseen by John Wells, a horticulture specialist committed to growing pot without pesticides while using advanced soil management techniques and integrated pest management protocols.
Wells has a unique background. For more than a decade he managed a nursery that produced millions of ornamental plants for wholesale distribution across North America.
He also ran a large native plant nursery in the Amazon that was sourced by tens of thousands of seeds and cuttings from rainforest plants.
CannaGrow faces some great growth prospects. In just Colorado alone, more
than $500 million worth of pot has been grown in regulated greenhouses. And
sales set new records each month.
In early February, CannaGrow announced its grower at its Colorado Buffalo Ranch Facility, Category One Botanicals LLC, was selected as an organic grower
to supply country singer Willie Nelson’s Sun Grown Cannabis Line.
According to ArcView Market Research, sales of legal cannabis should grow 25% this year, to around
$7.1 billion. And when you consider that more states
will either initiate or expand legal pot laws, the market appears to have a long runway to growth ahead of it. The analysts at ArcView project a 30% yearly growth rate and expect a $22.8 billion national market for legal pot by 2020.
CannaGrow is also learning how to navigate the wide range of restrictions and mandates that Colorado requires of pot growers. That knowledge will be very helpful as more states look to legalize pot for the first time or broaden its usage from medicinal to recreational.
As with many young firms, CannaGrow will need to strengthen its balance sheet in order to realize its vision. Look for the firm to raise more cash in coming months, which will dilute the interest of current shareholders. But the firm is already on the right trajectory. In 2017, the firm racked up $1.24 million in revenue, up 435% from 2016’s $231,953.
22nd Century Group Inc. (NYSE MKT: XXII)
22nd Century Group Inc. (NYSE MKT: XXII) has chosen to focus heavily on genetic engineering research on hemp, cannabis, and tobacco.
This firm has amassed more than 200 patents over the past 15 years and has another 50 pending. Its goal is to produce new strains of tobacco and cannabis that contain all of the beneficial compounds with few of the harmful ingredients.
Of course, when you’re talking about tobacco, you’re talking about the possibility of nicotine addiction. 22nd Century Group has focused much of its R&D on reducing the amount of nicotine in its proprietary strains of genetically engineered tobacco.
Its efforts are paying off.
In fact, this firm’s tobacco contains 97% less nicotine than regular tobacco. This new tobacco could prove a godsend for people looking to quit smoking but who need to be weaned off of nicotine.
At the same time, there are people who want to keep their nicotine fix, but would just as soon avoid the tar and other additives that lead to cancer. For them, 22nd Century has created a tobacco with the lowest tar-to-nicotine ratio in the world.
In May 2017,
it received U.S. Food and Drug Administration authorization to conduct
clinical trials studying its
low tar-to-nicotine ratio cigarettes.
Even the Chinese market is noticing…
The Chinese Food and Drug Administration (CFDA) is opening an expedited pathway to approve 22nd Century’s low-nicotine X-22 in China. The company’s director of business development will speak about the product at the BIOCHINA Partnering Forum in China in late May.
In addition, New York Gov. Andrew Cuomo invited two company officials to be part of the first Summit on Growing the Hemp Industry in New York State at Cornell University. The governor wants to increase hemp growth in New York in short order, and 22nd Century is viewed universally as a market leader.
That’s a lot of diversified expertise before even getting to the most interesting part of 22nd Century long term: its Botanical Genetics LLC division. That subsidiary
|The elimination of cannabinoids in hemp is expected to revitalize the hemp industry worldwide. 22nd Century intends to lead this important effort.|
owns a range of patents regarding cannabis and aims to provide the legal hemp and medical marijuana markets with unique plant varieties containing little if any THC.
Hemp is basically a cannabis plant that has none of the THC that gets people high. Decades ago, farmers loved to grow hemp because it had a remarkable number of uses.
Hemp clothing is durable and lightweight. Hemp plants are
healthy food for livestock. The oil from hemp makes very useful waxes and resins. It can even serve as a key ingredient in plastics and biofuels.
22nd Century Group appears to be one of the few publicly traded firms looking at the hemp market, and this may shape up to be the next cannabis-inspired niche. Thanks to the growing acceptance of medical and recreational marijuana, the time for hemp’s revival may soon be at hand.
But let’s get back to the firm’s broader cannabis research. 22nd Century is taking a very different approach to this effort than almost any other firm on the planet. It is researching ways to derive the best traits of cannabinoid plants – without actually using cannabis.
As every pot grower knows, a lot of care and technique goes into the cultivation of a pot plant. Tobacco plants are much more robust. Just plant the seeds, water them, and watch the plant grow. By planting the right DNA from cannabis plants into other plants, such as tobacco, 22nd Century looks to take advantage of the great ease with which tobacco can be grown.
This isn’t a bid to supply the recreational pot market. Instead, 22nd Century is focusing on strains that have little or no THC. They only want to deliver the CBDs that are showing so much promise of treating neurological and other disorders.
If a broad range of medicines are to be developed with CBDs as a key ingredient, then the need for high-volume, low-cost plants will be crucial to supply the market. This unique cannabinoid-to-tobacco approach could end up helping 22nd Century to play a
major role in the industry.
22nd Century had a busy and fruitful six months starting in December 2016. Its quarterly net sales revenue increased by 44.1% year over year, according to financials released in March 2017. In December 2017, it announced an agreement with the University of Virginia Patent Foundation to develop low-THC hemp crops. And in late February 2017, it got a boost
when a U.S. District Court judge dismissed a lawsuit from a partner in a Chinese joint venture that 22nd Century severed ties with.
Best of all for investors like us, 22nd Century keeps upping its revenue projections and trades very cheaply.
During a recent earnings call, the firm’s president and CEO, Henry Sicignano, said 22nd Century saw its revenue rise in the first quarter of 2018 to a high-water mark for the company, at $6.11 million.
The stock’s got a ton of
potential to soar no matter what the U.S. government
does or doesn’t do regarding
MARIJUANA ECOSYSTEM #2
As every pot grower knows, a lot of care and technique goes into the cultivation of a pot plant. For one, marijuana plants need to flower before they produce tetrahydrocannabinol, or THC (the chemical that gets users high). The plants have to be exposed to light for 12 hours a day and kept in darkness for just as long.
Kayvan Khalatbari and Nick Hice, co-owners of Denver Relief, a medicinal-marijuana dispensary told The Denver Post that “The best place to grow marijuana is in a room in the basement with a locked door so light doesn’t inadvertently get in when the plants are ‘sleeping.’”
That’s fine if you’re a “grow your own” private toker. If you spoil a “harvest” or two, you won’t go broke or out of business. Not so for the professional, large-scale cultivator. He has little room for error. As they say in the trade, “His plants have to flower.”
To protect their investment, growers turn to state-of-the-art greenhouses containing high-tech devices and monitors such as hygrometers, which see to it that humidity levels never get above 50%, and CO2 tanks, which add carbon dioxide to the indoor air.
Another way that the major growers control cultivation is through “hydroponics,” which is a method of growing plants in mineral- and nutrient-laced water, without soil. According to Manifest Minds LLC, the hydroponically grown plants will make up a $24 billion market by 2018.
All this barely scratches the surface of marijuana technology. Growers also need high-powered horticultural lightbulbs, custom regulated fans, valves and pumps, nutrient and mineral supplements, plus specialized “grow tents.”
With growers so dependent upon technology to operate this soon-to-be $200 billion industry, it’s no surprise that Silicon Valley is pouring money into it: According to Cleantech Group, venture capitalists sank $976 million into agriculture startups.
A 2015 report by MarketsandMarkets estimates that the market for “smart” greenhouses will reach
$1.2 billion by 2020.
This is the landscape firms like The Scotts Miracle-Gro Co., Two Rivers Water & Farming Co., and General Cannabis Corp. find themselves in. It’s a landscape filled with opportunities for “growth” in more ways than one.
The Scotts Miracle-Gro Co. (NYSE: SMG)
While the legalization of marijuana is creating the need for acres and acres of professionally grown cannabis, you shouldn’t forget the little guy.
After all, for decades thousands of
consumers have been growing their own, even while risking trouble with law
enforcement. By one estimate, $60 billion worth of illegal pot is grown each
year in the United States.
|MARIJUANA MARGINS – HOW PROFITABLE IS CANNABIS? By some estimates, marijuana is poised to become the new “cash crop” in the United States. Bank of America and Merrill Lynch estimate that within a decade it’ll be a $150 billion to $200 billion industry. To put that into perspective, consider that tobacco sales are about $100 billion. And there will be no shortage of growers to supply that market. The reason is that, despite being a tricky crop to cultivate, marijuana is very profitable to grow. Chris Walker, a manager at a San Francisco company called Heliospectra, which makes lamps for cannabis growers, told the International Business Times in July 2015 that, “A tomato producer in a greenhouse might earn roughly 10 percent profit, while a cannabis grower in a similar setup could rake in as much as 80 percent.” Those high margins can spill over into other parts of the marijuana value chain. Between 2015 and 2016, Genius Extraction Technologies, which turns marijuana into smokeable oils, grew its revenue 500%. The company expects to double sales every year going forward.|
But with marijuana legal, the number of people looking to cultivate it for their own consumption is likely to skyrocket.
The marijuana-growing market could easily top
$100 billion within five years, with much of that supply displacing imported marijuana from dangerous jungles in Latin America.
And while this opens up an opportunity for firms that cater to growers and gardeners, it also presents those firms with a strategic dilemma. Should they establish a strong early presence in the pot-growing community? Or wait until the social climate around cannabis normalizes – that is, until growing your own pot is no more controversial than brewing your own beer?
The Scotts Miracle-Gro Co. (NYSE: SMG) is going with the first option: Embrace this fast-growing community of growers and, by doing so, “plant the seeds” for robust new paths to growth.
Scotts is already the world’s largest maker of lawn care and gardening products, and is now making a big push into indoor plant cultivation, as evidenced by its April 2015 purchase of General Hydroponics.
“Hydroponic” gardeners use air, light, and water to grow their plants indoors – without the need for soil.
This method means no mess and, more importantly, no pesticides. That’s a key consideration for green consumers.
Given the unsettled legal landscape around cannabis, Scotts’ emphasis on that market might seem like a dangerous choice. But in truth, it’s less risky than it seems.
If the legal marijuana movement stalls, Scotts will still benefit from the growing demand for hydroponic
equipment among young urban consumers eager to grow the herbs and greens that go into their salads.
But it’s hard to imagine the push for legal marijuana stalling out. In many respects, that genie has left the bottle.
legal pot made this new growth potential possible, hydroponics had been very
popular with a whole array of growers.
According to analysts, the global crop value of hydroponically grown plants is on pace to rise from $17 billion in 2013 to $27.3 billion by 2022.
If other countries follow the lead set by the United States, pot cultivation – and hydroponics – could well soar much higher than that.
There are many reasons why Scotts Miracle-Gro should embrace hydroponics. First, populations are increasingly concentrated in cities and even mega-cities. As people trade the countryside for the cityscape, they’ll have to grow their favorite herbs and vegetables indoors, using hydroponics.
Second, there is the perennial concern over pesticides; a number of pesticide bans have begun to take effect. Hydroponics, as we said, needs no pesticides, because it uses no soil.
Third, water shortages are a growing problem around the world and make crop-growing harder.
Hydroponics uses controlled, “drip” irrigation, which drastically reduces the amount of water needed to grow plants.
Fourth, Scotts bought into the hydroponics equipment field simply because it’s a very attractive business, with much higher profit margins than traditional lawn and garden supplies.
And finally, there’s the happy fact that demand for hydroponics systems stays strong year-round.
Scotts CEO Jim Hagedorn isn’t just dipping his toe in the water here. He sees the purchase of General Hydroponics as just the first of several moves, all aimed toward the goal of creating a $1 billion yearly business.
That’s a nice bolt-on addition for a business that currently generates around $3 billion in sales.
And that goal was surpassed in mid-April when Hagedorn announced he’d doubled down on the company’s move into hydroponics and the cannabis industry by purchasing Ohio-based Sunlight Supply Inc. for $450 million — the largest purchase Scotts has ever made.
The combined company is expected to serve 1,800 hydroponic retail customers in the U.S., with some help from Sunlight’s nine distribution facilities across North America. Hagedorn expects sales at Scott’s Hawthorne Gardening subsidiary to jump by about $600 million from $290 million.
Hagedorn is a big believer in market share, and he likely looks at the emerging hydroponics and cannabis markets the same way. Its four leading brands (Scotts, Miracle-Gro, Round-Up, and Ortho) have market shares ranging from 53% to 70%.
And the firm is out to make it easy for people to start using hydroponics equipment, to grow either cannabis or food. Scotts Miracle-Gro has 2,500 sales associates that it sends to visit retail stores, after training them on the merits of hydroponics.
Make no mistake: This is not your typical cannabis investment.
For one thing, Scotts is already quite popular with mutual fund managers, who like the fact that the firm has boosted its dividend for seven straight years.
If you are building a well-rounded cannabis portfolio, Scotts is
a clear choice to
anchor the low-risk end of the spectrum. And its early move to embrace the
cannabis community could help turn it into a robust grower.
Two Rivers Water & Farming Co. (OTC: TURV)
At its core, the cannabis industry is a subsector of the agriculture industry.
What makes the investment picture so exciting is that right now no infrastructure exists to help build out that subsector.
But make no mistake: The cannabis subsector is going to get built out – probably sooner than most folks realize. And that means a number of huge opportunities exist for firms able to fill various niches within it.
Two Rivers Water & Farming Co. (OTC: TURV), a state-of-the-art water management business in southeast Colorado, is one of those firms filled with pioneering spirit.
The company works with local growers to boost yields and improve the soil, and has also begun working with cannabis growers – those who grow their crops outside as well those who cultivate it inside grow houses.
That last point is important, because Two Rivers aspires to be the go-to choice for any growers needing ultramodern greenhouses.
It recently spun off its cannabis operations under the company name GrowCo Inc., which builds and leases greenhouses that are far more efficient than traditional ones.
It operates in Colorado now, but as states begin to change their laws, GrowCo hopes to expand its business as far and as fast as legalization will allow. It has even sparked interest from overseas investors.
In places like the Netherlands, where cannabis consumption laws are lax and growing space is limited by nature and population, efficient, high-quality greenhouses would be in great demand.
GrowCo’s management team has experience operating 7 million square feet of greenhouses with deep ties to major retailers like Lowe’s, Home Depot, and Kroger. Among the company’s chief assets is a strong understanding of how to
scale up an operation.
That makes the relationship between GrowCo and its clients more than a lease-for-space operation. It’s also a consultative arrangement that GrowCo can leverage in a
|GrowCo provides state-of- the-art growing infrastructure and water to licensed cannabis growers.|
“virtuous circle.” The more successful its clients become (with GrowCo’s help), the more space those clients want.
And bear in mind, it has been less than two years since Colorado has allowed growers to grow cannabis as an agricultural product. Before that, marijuana cultivation was limited to grow warehouses in industrial parks.
Warehouse growers are essentially limited to growing inside a traditional warehouse with a solid roof and sides. All light is artificial, and managing things like humidity and temperature is challenging. All those factors affect plant size and potency.
means a massive new market waits not only for GrowCo but existing growers
who can divert their land and
greenhouses toward the cultivation
of cannabis crops.
The chief operating officer of GrowCo is a third-generation greenhouse grower who brings that accumulated wisdom and expertise to the weed industry.
His company employs translucent roofs that allow plants to absorb all the sunlight they need. Heated floors and roof venting make it easier to manage shifts in humidity and temperature.
All those features mean that GrowCo greenhouses can be built in almost any country and in a wide variety of climates.
Two Rivers has been public since 2010. And despite some recent setbacks, GrowCo remains a very promising venture. Given the massive growth in the cannabis industry, it will likely grab sizable market share as commercial growing expands.
For instance, in February, Two Rivers announced it was partnering with a southern Colorado hemp grower to eventually produce CBD oil, the non-psychoactive component of cannabis that’s being tested for medicinal uses.
The caveat is: With a $6.9 million market cap, Two Rivers is tiny. That means a lot of short-term volatility. We’ll look to the next few quarters to show us how well GrowCo is doing for Two Rivers.
Surna Inc. (OTC: SRNA)
For many garden-supply firms, the boom in marijuana cultivation is a nice revenue booster for their main business. But most of these firms are loath to trumpet their role in this still stigmatized industry. Not Surna Inc. (OTC: SRNA).
The firm aims to offer everything a pot grower needs. Not just the regular growing equipment, but the tools to help boost yields, reduce the risk of contamination, save energy, and lower operating costs for cannabis producers.
Pot growers will tell you that the cannabis plant is hard to cultivate. You need to develop the right seeds, the proper mix of female and male plants, the perfect temperature and moisture conditions. And you need a lighting system that tricks the plants into growth mode at the right times of the day, not just when the sun shines.
This all comes together in what’s known as controlled environment agriculture. While many firms take the CEA approach, Surna proudly says its CEA platform is optimized specifically for pot. Its air chillers, air handlers, dehumidifiers, and reflector systems have become the clear choice for firms that are sprouting up in Colorado, California, Oregon, and elsewhere to meet the medical and recreational demand for pot.
Surna is now developing a prototype that will take marijuana cultivation to the next level. The firm’s
Hybrid Building is both an indoor growing facility and an open air greenhouse.
The Hybrid prototype, which is being developed in tandem with an
engineering team at the University of
Colorado, could become an industry benchmark.
This building design allows sunlight (augmented by high power LEDs) to reach the cannabis plants, while the sealed environment minimizes the negative effects of outside air contamination from pests and pathogens. The closed-loop system also allows for an injection of up to 30% carbon dioxide in the growing facility, which leads to much faster plant growth.
Surna is no profit-less startup. In the fourth quarter of 2017, revenue increased by $743,000 or 47% from the prior quarter. Revenue for all of 2017 was down about 5% for the firm compared to 2016, but net bookings reached more than $9 million.
Some of that revenue comes from big-ticket projects. For example, Surna in 2016 sold a $725,000 growing system to a Las Vegas-based pot grower, which will span 30,000 square feet and require 550 tons of cooling equipment. And on Feb. 28, 2017, Surna announced that it will design and provide equipment for Vancouver, Canada-based pot producer Sante Veritas Therapeutic. The contract is worth $835,000 and represents Surna’s fifth Canadian client.
The entire pot growing industry is still in its infancy, both here at home
and, eventually, across the globe. With a yearly sales exceeding $7 million,
Surna is already a first-mover in large-scale marijuana cultivation and has a decent shot of becoming
a $100 million firm. And as we said, Surna
has showed the ability to be profitable, meaning that it won’t need massive
sums of new money to fulfill its potential.
MARIJUANA ECOSYSTEM #3
You’d be hard-pressed to find a segment of the modern economy with as much potential for explosive growth as marijuana dispensaries. And that growth is happening right now.
For one thing, it’s estimated that 2.6 million Americans across the entire country would seek medical marijuana treatment if it became available in their state. Instead of lining up at the Duane Reade or the CVS pharmacy counter… those millions will queue up at the nearest dispensary.
The same goes for recreational users – about 100 million people.
Add them into the mix with the medical marijuana consumers, and dispensaries will count one out of every three people as a potential customer. You can see why I expect that, to meet this mushrooming demand, licensed dispensaries will pop up everywhere.
Here’s the kind of growth we’re talking about. On Oct. 1, 2015, Oregon began allowing existing medical dispensaries to engage in “limited” sales of cannabis. The Oregon Retailers of Cannabis
Association estimates that sales were $13 million in the first week alone.
That’s annualized revenue of $676 million.
In the much smaller Nevada, first week sales in July 2017 exceeded $3 million. And that was while combating a shortage of product from licensed producers.
There were an estimated 2,100 dispensaries in California alone, all in place before the January 2018 mega-catalyst of recreational legalization in the country’s biggest individual market. There were at least 900 in Colorado. No one knows
for certain how
many currently operate in the country as a whole.
What is certain is that, as existing legal restrictions on “weed” first loosen and then fall away, the number of dispensaries will soar as entrepreneurs scramble to get in on such a cash cow.
The “weed rush” has already started.
That’s why when the state of Maryland made available 102 dispensary licenses, the state’s medical cannabis commission received more than 800 applications. Pennsylvania later had about 900 applications for a total of 27 dispensary permits and a dozen growers licenses.
Dispensaries carry more than just smokeable marijuana.
Companies like Vancouver’s Aurora Cannabis also sell cannabis derivatives, chiefly cannabis oil. They have also begun operating sophisticated web portals that function as a sort of Amazon.com for marijuana users.
Supreme Pharmaceuticals Inc. (OTC: SPRWF)
Supreme Pharmaceuticals Inc. (OTC: SPRWF) is the only grower operating a business-to-business (B2B) model. It primarily sells to other companies that then sell into the regulated retail market.
Supreme is the first to occupy this space, making this a pure growth-based weed stock.
As recently as a year ago, dispensaries were getting their weed both from licensed growers like Supreme as well as local, unlicensed growers. Smaller, independent growers may never be crushed so much as contained, but exploiting the advantages of unfair pricing and lack of regulation is fading.
You see, these unlicensed competitors now are in the Canadian government’s crosshairs judging by the dozens of early 2017 raids. This caught so many marijuana advocates by surprise that unwarranted concern started to spread that PM Trudeau would not keep his pro-legalization campaign promises.
Supreme, meanwhile, is fully legal and doesn’t have to worry about law enforcement raids. Instead, it’s focused on national distribution channels and long-term contracts. These lock in prices for retailers and help them to manage their profitability better.
Also, Supreme offers recognized brands of weed and will “white label” as well. That means that any retailer who wants to sell his or her own “house” brand, can buy weed from Supreme, and call it whatever they like. Supreme is only interested in the sale of its harvests, not consumer branding.
That strategy also means it won’t have to deal with additional advertising costs as the market expands, because it won’t have to worry about branding. Retailers bear that expense.
Supreme’s primary growing is carried out by its wholly owned subsidiary 7Acres. The name refers to the actual size of the “footprint” – 342,000 square feet of grow space – its greenhouses occupy. The company is located northwest of Toronto near the banks of Lake Huron, a short drive to Detroit.
Because of its proximity to the Great Lakes, it can ship by boat, saving on transit costs and maximizing margins.
In mid-2017, through its 7ACRES subsidiary, Supreme garnered a sales license under the nation’s
Access to Cannabis for Medical Purposes Regulations.
Also, its proximity to large urban areas in the U.S. means the company can benefit from medical marijuana “tourism” today and from the recreational variety soon.
In late June 2016, while waiting on its dried marijuana sales license, Supreme made its first sale of six genetic strains of its production. That’s an encouraging indication that the firm has a sharp sales team and that its product is stirring interest in the market.
And Supreme’s plans extend to international markets as well.
On March 20, 2018, Supreme made moves to purchase a 10% stake in Medigrow Lesotho Limited for
$10 million CAD.
Medigrow is a licensed cannabis producer in the southern African Kingdom of Lesotho, and Supreme plans on using cannabis oil from Medigrow to sell back into Canada and around the world.
Supreme is also working to drastically expand its cultivation capacity, as concerns grow that Canada will face a weed shortage soon after legal recreational sale and usage begins by summer 2018.
If you can access the Canadian Securities Exchange, the stock has often been far more liquid than OTC in the United States.
But if you buy OTC, don’t worry. This is a long-term hold, so once you get in, you can hang on until the
stock gets big enough for financial players
to start buying
in, raising the volume… and the price.
MARIJUANA ECOSYSTEM #4
Think of a food or a drink that you would never imagine being connected to marijuana. Got it? Well, somebody is probably in a kitchen or distillery concocting it as we speak.
The Edibles category is becoming the largest growing segment in market share in legal cannabis, eating into the market for smokeable products, according to 2017 research from New Frontier Data.
Most folks have already heard about things like “pot brownies.” But the market for marijuana “edibles” goes far beyond that. There are weed desserts and weed energy drinks. In fact, we’re even about to see the opening of the world’s first weed distillery. The founders believe their product is so good, simply calling it marijuana would be doing it the same amount of justice as calling vodka “potato juice.”
The Colorado Department of Revenue reports that in 2014, 5 million marijuana edibles were sold in the state. And according to the Denver Post, marijuana-infused edibles account for roughly 45% of the legal marijuana marketplace. A February 2016 report by Bloomberg says that edibles account for 50% of the revenue earned by dispensaries.
Edibles sales in California, Colorado, Oregon, and Washington are estimated to be $669 million, according to BDS Analytics. About 40% of edible sales were from pot-infused candy, and 21% were from chocolate products.
The sheer variety of edibles on offer is mind-boggling. One website boasts a full assortment of bars in six flavors: Vanilla Affogato, Mile High Mint, and Peanut Butter Buddha. On every nutritional label,
alongside information on calories, carbs, and sodium, you’ll find the amount of THC the bars contain – 100, 200, or 225 milligrams.
For people averse to inhaling smoke, that same site offers THC-laden capsules, lip balms, hash bath oils, topical compounds, and even THC patches that provide “accurate dosing… a quick onset and unsurpassed duration.”
Thirsty users can enjoy THC-infused coffees, sodas, and sparkling waters.
And according to Salon, “one Denver bagel shop recently got attention for serving smoked salmon infused with THC.”
The growth in the edibles market is being driven by more than a desire to satisfy marijuana users’ “munchies.”
A February 2016 report by Fortune quotes John
Kagia (author of the 2016 State
of Legal Marijuana Markets report) as saying that marijuana edibles
“come at higher price points than the flower does, which means the businesses
are able to capture higher sales per customer.”
The edibles market is also a windfall for marijuana growers, who can sell the trim and other parts of the plant to other companies who use them to make their own marijuana derivatives.
Cannabis Sativa Inc. (OTCMKTS: CBDS)
As you research cannabis stocks, you’ll rarely come across a management team with a pedigree as impressive as Cannabis Sativa Inc. (CBDS). The result is that this firm’s executives likely understand the legal workings of the U.S. government better than firms 100 times its size.
That pedigree began with Gary Johnson, the fomer governor of New Mexico who shepherded this firm to its current state before stepping down to run for president as the nominee of the Libertarian Party.
Johnson was succeeded by Mike Gravel, the fomer senator from Alaska, who is an outpsoken critic of the criminalization of marijuana. Gravel cut his chops in this movement 30 years ago when he was an outspoken opponent of Richard Nixon’s war on drugs.
Judge Jim Gray of Orange County, Calif., sits on Cannabis Sativa’s board. He was always an progressive judge, focusing on issues such as drunk driving and juvenile defense reforms. Another board member, Stephen Downing, was a former deputy chief of the Los Angeles Police Department.
But these men didn’t join Cannabis Sativa to change political opinion about pot. They simply see a business model that is perfectly positioned to thrive as pot moves out of the shadows and into the mainstream.
The Nevada-based Cannabis Sativa makes and sells a range of herbal- based skin care products including salves, balms, and lotions. While most of its current products are based on traditional ingredients, Cannabis Sativa is also developing a line of cannabis-based products.
The firm’s Hi Brand of products is targeting the fast-growing marijuana edibles market, for people that prefer to avoid smoking pot but still want the high that the drug can give.
The timing is perfect. Nevada’s full legalization caused a surge in demand for edibles.
In Colorado, for example, edibles accounted for 45% of the legalized pot market in 2016, a far higher percentage than anyone could have guessed when Colorado first changed its laws. And that was when edibles were not as well known by the general buying public, especially medical users.
According to ArcView Research, the edibles category may be worth $3 billion by 2020.
The edibles market has had its share of controversy, as first-time users underestimate just how potent a piece of candy may be. Cannabis Sativa goes to great lengths to help consumers know exactly how much THC they are ingesting.
For example, the company’s Hi Brand chocolate bars have 100 milligrams of THC, and can be broken up into 12 squares. Users can consume just as much or as little as they want. This approach is actually
|At full capacity, the 7Acres “Hybrid Greenhouse” will produce 50 million grams of output every year.|
more controlled than smoking. When you take a toke, you have no idea if you inhaled a little or a lot of THC with the smoke.
The management team at Cannabis Sativa thinks there is a great opening for pot dispensary franchises as well. The firm has developed a prototype store that sells both pot and edibles, and the firm has created a range of marketing materials and
business tools to help people without a strong business background open a new store without much experience. The firm also plans to sell a number of items that these stores will stock.
State governments stand to benefit from these kinds of businesses. In Colorado, for example, stores pay a retail and medical sales tax of a 2.9% along with a 10% retail marijuana sales tax and a 15% marijuana excise tax.
Cannabis Sativa is taking yet another shot on goal in the legal pot market. Beyond its push into edible products and store franchises, it has also patented a unique strain of pot, known as CTA. It’s a hybrid plant, from strains in Ecuador, for consumers that seek what the firm calls a “ceiling-less high.” Translation: It’s potent stuff.
And it’s released the Ibudtender app, which will be the standard-bearer for weed apps. Ibudtender provides a secure portal for weed customers to find, order, and set up delivery of products. “There is simply no other app or website that provides the level of integration that Ibudtender does,” Cannabis Sativa President David Tobias proclaimed.
Cannabis Sativa is also looking to expand into telemedicine operations.
In August 2017, Cannabis Sativa bought for $4.56 million a controlling interest in PrestoCorp, an online telemedicine platform connecting doctors with patients seeking a medical marijuana recommendation.
This firm remains quite lean. It spent less than $100,000 per quarter up
until the quarter ending in March 2017. Still, cash levels are low, so look for
a capital injection in the future.
MARIJUANA ECOSYSTEM #5 WEED-BASED WONDER DRUGS
By far the biggest segment of the emerging cannabis landscape, and the one that is lending the greatest sense of “legitimacy” to legal weed, is the market for medical marijuana.
For decades the FDA has been quietly greenlighting drugs that contain cannabinoids or similar chemicals as those found in the cannabis plant. The agency has not been shy about expressing its public support of research to explore marijuana’s vast potential.
In fact, the FDA has already granted fast- track approval and orphan drug status to some pot drugs.
It’s no exaggeration to say that the use of marijuana to treat a wide variety of illness and disease has been the “opening wedge” that is making fully legal marijuana – and the profit opportunity it represents – into a reality.
And medical marijuana will continue propelling the industry as legalization increases.
In July 2015, Salon reported that, when it comes to legal marijuana, “By far the biggest financial movers and shakers behind the scenes are pharmaceutical and research outfits.”
As you saw earlier, 82% of doctors approve of medicinal marijuana. One of them, a University of California oncologist named Dr. Donald Adams, is full-throated in his support. “I say all the time, not a day goes
by when I’m not
recommending cannabis to patients for nausea, loss of appetite, pains,
insomnia, and depression – it works… If physicians are in support of cannabis
as a medicine, why is it not medicine?”
A MARIJUANA MEDICAL MIRACLE
You’ve probably heard the stories of parents who have children with severe conditions being forced to move to places like Colorado to get access to medical marijuana.
Jennifer Cooper of Virginia, a teenager, is a prime example of this. She suffers from a rare condition called Jeavons syndrome that causes her to experience as many as 15 to 50 seizures an hour.
As a report by the Brookings Institute explains it, “Her seizures began when she was quite young. When Patrick and Beth noticed the jerking motions in her eyes, which were occurring in short stints over dinner and at other times during the day, they took her
to a neurologist, who diagnosed her with a mild form of epilepsy. For several years, the condition was manageable.”
“Over time, however, Jennifer’s condition worsened. On New Year’s Eve 2011, one of those clusters led to a more dangerous, full body grand mal seizure. This was her first grand mal seizure, but it would not be her last.”
All Jennifer’s doctors could offer was a constantly changing mix of drug cocktails with side effects that only added collateral damage to an already bad situation. Her parents, Patrick and Beth, wanted to try medical marijuana.
But until late 2015, it was illegal in Virginia and carried a five-year prison sentence. So Beth and her daughter moved to Colorado, where she added medical marijuana to her treatment plan.
Her seizures went from up to 50 an hour down to 10 a day.
Not only that, her
depression disappeared, too.
|CANNABIS AS A CURE FOR ADDICTION The National Institute of Health (NIH) says that 100 million Americans suffer from chronic pain. As the number of prescriptions for opiate-based painkillers has risen, so has the number of people becoming addicted to those drugs. According to ArcView, “The social costs of the abuse of prescription pain killers is leading to calls for… less addictive pain treatments. For many, cannabis is a strong candidate.”|
The voters in state after state are quickly coming to an agreement that cannabis is in fact a medicine. The evidence is impossible to ignore. More than 23,000 scientific papers have been released on the medical applications of weed.
Alzheimer’s, cancer, epilepsy, post-traumatic stress disorder (PTSD), autoimmune diseases… the list goes on and on.
Advocates of medical (and recreational) marijuana are starting to gather some very powerful allies under their expanding tent.
According to Pot Network, an online media and networking hub devoted to cannabis, “Former New York Giants defensive lineman Leonard Marshall [has been] very vocal about his support for the public embracement of medical marijuana.” The site went on to add that “Marshall was diagnosed with a degenerative brain ailment in 2013 and has been using non-psychoactive variants of medical marijuana to help him deal with the disease.”
Billionaire Sean Parker, creator of Napster and an early
investor in Facebook, has publically committed to matching dollar-for-dollar all donations to the
Marijuana Policy Project of California as it worked to make cannabis fully legal in the Golden State.
And for the second year in a row, Congress has voted to forbid a single penny of federal funds from being used to harass, raid, or interfere in any way with the operations of medical marijuana dispensaries in states where these businesses can legally set up shop.
The military understands the medical benefits of marijuana, as well.
Congress has introduced bipartisan bills that would allow doctors at the Department of Veterans Affairs to discuss marijuana treatment options with soldiers who are suffering from conditions like PTSD, chronic pain, and traumatic brain injury in states where the treatment is legal. Even White House Chief of Staff and former Homeland Security Secretary John F. Kelly publicly broke with Sessions over cannabis, saying he’s in favor of trying anything that will help veterans and “medicine is medicine.”
So momentum is only going in one direction.
Cara Therapeutics Inc. (Nasdaq: CARA)
Although marijuana-based drugs may one day fully replace opiates when it comes to pain relief, Cara Therapeutics Inc. (Nasdaq: CARA) remains focused on both markets.
Chances are that marijuana-based therapies will be the
choice for sufferers of moderate pain, while opiates will still provide relief
for patients whose pain burden is simply overwhelming.
Cara’s researchers are focusing on what are known as CB Agonists, cannabinoid receptors that are similar to the brain’s opioid receptors.
To see what this means, here’s a quick biology lesson.
A whole range of different pain triggers are found outside the central nervous system (CNS). By targeting the CB receptors outside the CNS, Cara’s CR701 drug compound is giving quick pain relief to sufferers of certain types of pain.
The challenge, of course, is to test CR701 in bigger and bigger drug trials, and though this approach may yield a profound, new approach to pain management down the road, Cara’s management is focused more squarely on the opioid drugs in development in the near term.
And here is where some people think that Cara may be tapping into the “Holy Grail” of pain relief. For more than three decades, researchers have known that a part of the brain, known as the Kappa
Antagonists, hold receptors that can bring pain relief from morphine-based products. These receptors ease pain without the hallucinations and depression that you often find with other opiate-based approaches.
Past efforts to tap into the Kappa Antagonists have failed because drugs invariably cross the blood- brain barrier, hopping over to other receptors that trigger the powerful side effects of opiates.
The good news is that another Cara compound, known as CR845, only goes where it should. In a test of more than 500 patients thus far, not a single one has seen the drug cross into the central nervous system.
Cara is testing CR845 for a pair of treatments. First, Phase III trials are underway for post-surgical pain. Trial results should be released in 2017, which would serve as a strong catalyst for shares.
Second, this drug is in Phase II trials for the treatment of uremic pruritus, a severe itching and pain problem caused by late-stage kidney failure. There are approximately 400,000 patients in the U.S. that undergo dialysis, and roughly half of them experience pruritus.
As CR845 has undergone larger and larger tests, it has become apparent that this drug has almost no side effects. Around 6% or 7% of people experience dizziness or headaches, which usually fade pretty quickly.
The FDA stresses that new drug must demonstrate minimal side effects, if it is to get a “thumbs up” from the drug agency.
Shares of Cara had a setback in February 2016 when the company told the FDA that some CR845 patients saw a spike in blood sodium levels.
That issue was eventually resolved by slightly lowering dosage levels. Investors who can see the long- term potential now have a new buying opportunity.
Investors should also know the financial risk inherent in a drug developer like Cara. The company is burning through $10 million per quarter as it amps up its research efforts and has less than $100 million in the bank.
Cara may need to line up a strong strategic partner or sell more shares before it can successfully launch CR-485. But that’s par for the course among early-stage biotech firms.
With so much ground-breaking research being done with both cannabis and opiate-based drugs, Cara should have no trouble finding financial backers when the time comes.
InMed Pharmaceuticals Inc. (OTC: IMLFF)
To succeed as a smaller company with big ambitions, you need the right mix of compelling product strategies backed by experienced management teams and a potentially large target for market opportunities. That’s the only way you’ll be able to attract the kind of investor interest – and financial backing – to transform a vision into a full-fledged, cannabis-focused business.
Vancouver-based InMed Pharmaceuticals Inc. (OTC: IMLFF) has all of these factors in its favor and looks set to emerge as a leading light in the emerging cannabis industry.
InMed is one of the most innovative biotech companies I’ve ever seen – and being in Silicon Valley
for more than 30 years, I’ve seen a lot.
This firm’s business model is based on a simple belief: that cannabis has unique and valuable medical properties… specifically, that it can reduce the key factors that lead to inflammation.
There are literally over 90 “healing” cannabinoids in marijuana that could be used to alleviate symptoms of hundreds of diseases.
This company has developed a proprietary system – the only one of its kind in the world – that identifies these healing cannabinoids and then matches them to the various diseases it can help alleviate.
So, this is incredibly useful technology. It could save literally millions of dollars and years of time developing life-changing therapies.
For more than two decades, InMed has been focusing on what it calls an “Intelligent Cannabinoid Drug Design Platform.” The firm has been testing pot’s impact on various genetic maladies, in addition to those that lead to inflammation.
For example, InMed is testing a cure for epidermolysis bullosa (EB), which are a group of genetic conditions that cause the skin to be very fragile and to blister easily. The painful – and sometimes lethal – condition currently has no cure. Patients apply bandages and hope for the best.
InMed’s scientists discovered that cannabis can stop the inflammation that leads the top layer of skin (the epidermis) to separate from the layer underneath (the epidermis).
The firm is developing INM-750,
which is applied as an ointment and has delivered robust results in early stage trials. That has led the firm’s research team to explore treating
other sources of inflammation.
This is a huge unmet need. Allied Market Research predicts that sales of anti-inflammation products will reach $106.1 billion by 2020. Current treatments for inflammation are often only partially effective, and no firm thus far has developed a cannabis-based solution.
InMed is also targeting glaucoma with its CTI-085 drug. Glaucoma affects more than three million Americans, and 10% of those sufferers will eventually go blind.
As we said earlier, InMed has lined up an impressive leadership team. CEO Eric Adams has been helping fund and nurture biopharma firms for more than 25 years and was previously chairman of BIOTECanada’s Emerging Company Advisory Board.
While Adams handles the business end of InMed, Dr. Sazzad Hossain is the firm’s founder and chief scientific officer. He was a senior scientist at the Biotechnology Research Institute of National Research Council Canada. And at Xenon Pharmaceuticals in Vancouver, he oversaw a research team focused on pain, inflammation, and cardiovascular diseases.
InMed’s research team isn’t just interested in the interaction between cannabis and genetic maladies.
They are interested in the genetics of cannabis itself as well. Over the past few years, they have been developing a unique database of cannabis bioinformatics, and plan to start helping other medical research firms advance their own understanding of the properties and curative abilities of marijuana.
InMed also aims to develop purified phytocannabinoids, which are extracted from the cannabis plant. The firm is reengineering the plant to develop strains that are free from by-products and impurities that can emerge in a typical extraction process. Scaling up this process will enable InMed to sell these highly valued phytocannabinoids to other medical firms.
Like many young cannabis-focused firms, InMed is pursuing several paths to success, although over time, it will likely winnow its focus to the most promising paths in terms of cannabis research.
In March 2017, Forbes called InMed “more than just another cannabis company,” one whose drugs could generate $6 billion a year in revenue.
And on May 4, 2018, InMed uplisted to the OTC Markets Group index OTCQX.
InMed was positioned for success even without full Canadian legalization. Now, it’s hard to even imagine how much additional business will be available to them following the end of prohibition.
Arena Pharmaceuticals Inc. (Nasdaq: ARNA)
For most of the 20th century, doctors knew little about the workings of our most important organ, the human brain.
But in the past decade, researchers have spent billions to learn more and more about this all-controlling organ. And billions more are spent each year researching ways to design drugs and devices that can leverage this hard-won knowledge to radically change the course of many diseases and disabilities.
It may be that the toughest choice is simply where to
focus all this effort.
San Diego-based Arena Pharmaceuticals Inc. (Nasdaq: ARNA) has chosen to target G protein- coupled receptors (GPCRs), biological clusters that can sense molecules outside the cell and activate responses within the cell.
Brain cells dictate almost every one of our sensations, thoughts, and actions. For example, they send signals that trigger appetite and hunger. Arena exploited this correspondence between cause in the brain and effect on the body to develop BELVIQ, which helped people with binge-eating disorders to curb their appetite.
When that drug was approved in June 2012, analysts thought it might become a blockbuster. But sales haven’t been as robust as expected. Blame goes to a lack of enthusiasm for obesity drugs, from both insurers and doctors.
But as you’re about to see, this reversal is no cause for alarm.
Arena has been wise enough to pursue its research around GPCRs, especially in the areas of cardiovacular, central nervous system, and metabolic diseases. And it now has a deep pipeline of drugs that may help this stock stage a sharp rebound in coming years.
For example, Arena is testing a range of drugs under a program known as APD334. One approach, for the treatment of auto-immune diseases such as ulcerative colitis, is in Phase II trials. That drug may have peak yearly sales in excess of $1 billion, if approved by the U.S Food and Drug Administration (FDA).
But for this special report, you need to know about APD371. It’s targeting the cannabinoid-2 receptor and could deliver breakthrough gains in the field of pain management. In Phase I trials this drug has been very effective while showing no signs of psychotropic effects and no potential for dependence or abuse, a key drawback of many opiate-based pain treatments.
Yet APD371 isn’t just going after the opiate replacement market. Recall that over the past decade, there was a great deal of interest around a new class of pain drugs, called nonsteroidal anti-inflammatory drugs (NSAIDs).
The most popular NSAID, Pfizer Inc.’s (NYSE: PFE) Celebrex, became a poster child for this group of drugs. But post-approval studies found that the use of Celebrex led to a 37% spike in strokes and heart problems and an 81% increase in internal bleeding.
Arena’s APD371 side steps those concerns, as it has no direct impact on the heart, liver, stomach, and other organs that NSAIDs impacted. It simply changes how the brain perceives pain. In layman’s terms, APD371 makes the pain receptors in the brain less sensitive.
After announcing stellar Phase I results in April 2016, Arena got the green light to design a much larger Phase II trial.
Let’s be clear: This isn’t a drug derived from cannabis. Instead, it acts on the same exact mechanisms of action and on the same part of the brain as pot-based drugs do. In effect, clinical trial progress
for APD371 will further validate the entire medical approach and philosophy around the emerging cannabinoid targeting drug firms.
All of these drugs face a powerful market opening. An estimated 100
million American adults suffer chronic pain, which makes the global pain management
therapeutics market worth more than $30
billion each year. In light of the well-established drawbacks of opiates and NSAIDs, it’s pretty clear that a better solution is needed. You don’t see these kinds of massive medical markets very often.
Arena should have the staying power to fund its clinical trials. It has $629 million in cash, which should last several more years at current burn rates.
As APD334 and APD371 show more progress in clinical trials, the firm may look to strike a global sales partnership for these drugs, which would bring cash in the door.
In mid-2017, Arena bolstered its stock’s stability by doing a 1-to-10 reverse split, getting it away from more volatile penny stock considerations. In the two weeks after, the stock nearly doubled from its new, higher price and saw no immediately sell-off.
Zynerba Pharmaceuticals Inc. (Nasdaq: ZYNE)
This company has been taking a two-pronged approach to the medical marijuana market. A pair of drugs in development aims to capitalize on the therapeutic strengths of the cannabis compounds THC and CBD.
First, Zynerba Pharmaceuticals Inc. (Nasdaq: ZYNE) is developing a CBD-based topical gel that offers relief from a range of ailments, including epilepsy.
The firm has been perfecting a topical gel formula that more effectively penetrates the top layers of skin. This gel approach could work better than traditional pill-based approaches, as the drug will not need to pass through the liver before hitting the bloodstream.
Zynerba is also targeting Fragile X syndrome, a genetic mutation that can lead to a host of behavioral issues. Fragile X afflicts 71,000 Americans and another 88,000 outside our borders. ZYN002 actually silences the gene responsible for Fragile X, which opens the door for other kinds of gene-altering treatments down the road.
Therein, Zynerba also has worked on a THC-based patch, known as ZYN001 that targets the body’s cannabinoid receptors.
Roughly 5.6 million people in the U.S. and 24 million people worldwide suffer from fibromyalgia, which causes severe pain, memory loss, and countless sleepless nights.
While doctors don’t yet fully understand what causes the disease, marijuana users have long known that the drug can bring great relief.
In a survey led by the National Pain Foundation, 62% found marijuana to be “very effective” in the treatment of fibromyalgia symptoms.
By contrast, that same survey found that the current drugs on the market – Cymbalta, Lyrica, and Savella – gave clear relief to only 8% to 10% of patients. In fact, more than 60% of the people surveyed said that those existing drugs gave “no relief at all.”
Peripheral Neuropathic Pain (PNW), which afflicts 20 million people
in the U.S. each year, according
to the National Institutes of Health, is another target
for this drug.
However, Zynerba hit a bump in the road with disappointing Phase II trials and a subsequent stock price tumble.
While concerned, we’re not panicking along with them.
This situation is far from unprecedented. Biotechs – especially when developing landmark, game- changing medicines – frequently have setbacks.
It’s a temporary obstacle, not a death knell. There’s a bright team in place at the Devon, Pa.-based company.
Look at Zynerba for what it now is: an “on-sale” stock with the potential to explode with profits once it hits on a marijuana-based drug. Even with going back to the drawing board, Zynerba still has a major head start its most biopharma competitors that are suddenly interested in cannabis-based products.
GW Pharmaceuticals PLC (Nasdaq ADR: GWPH)
Study after study has shown that up to two dozen medical conditions could be treated with marijuana.
Its two key ingredients, cannabidiol (CBD) and tetrahydrocannabinol (THC), have a clear impact on brain function and pain management.
Glaucoma sufferers, for example, have long known that pot can reduce ocular swelling. Many people swear by pot’s ability to improve lung function, counterintuitive as that may seem. And people suffering from conditions such as multiple sclerosis will tell you that this drug can greatly ease the daily pain they must live with.
Results like those are part of the reason medical marijuana has been approved in 24 states and in many countries around the world.
The legal market for medical marijuana exceeded $4 billion in 2015, and will likely reach $35 billion by early next decade, according to ArcView Market Research and New Frontier Data.
That got the scientists at GW Pharmaceuticals PLC (Nasdaq ADR: GWPH) thinking. If marijuana has such a broad range of potentially healing properties, and is finally receiving more respect among doctors, why not build a business around CBD and THC?
GW has a great head start in the race to build drug franchises around the healing powers of cannabis.
For the past five years the firm has been cultivating strains of the plant with an eye to increasing concentrations of these two key ingredients. This effort has made it possible for GW to provide its engineers with a robust supply of the raw material they need as they ramp up research into a broad range of new drug candidates.
GW’s scientists are looking to capitalize on a series of medical breakthroughs made in the 1990s, when researchers made discoveries related to endocannabinoid receptors, which regulate proteins.
THC and CBD go right to these receptors and can have a
profound impact on the body’s various mental and physical responses.
GW Pharma has focused on the impact of CBD, which targets the brain’s receptors that can control mood and brain seizures.
For the 3 million epilepsy sufferers in the United States (and the 62 million sufferers worldwide), relief from seizures would be nothing short of a miracle.
That’s why so many of them are focused on GW’s Epidiolex, which has been quickly moving through clinical trials.
A turning point came in 2012, when an 11-year-old boy named Sam was given high doses of CBD for the first time. Despite having taken a dozen anti-seizure medications, Sam still suffered from more than 100 seizures every day.
Thanks to GW Pharma’s CBD formulation, Sam now experiences only three to five seizures each day.
Some days, he doesn’t have a single one. As you’d imagine, many families are clamoring to get their children enrolled in Epidiolex clinical trials. They soon got their wish.
By 2015, 20 separate studies were underway involving 750 children. On average, patients have experienced a greater than 50% reduction in seizures.
Fully 95% of all patients enrolled in clinical trials for this drug have stayed in the program. You see, typically a combination of toxic side effects and lack of effectiveness leads 20% or more of patients to drop out of trials like this.
But Epidiolex has shown only fatigue (in 17% of patients), diarrhea (17%), and sleepiness (21%) as side effects.
After several years’ worth of promising clinical data, Epidiolex will likely be approved by the FDA this June.
We know this because at a mid-April FDA advisory committee meeting, members voted 13 to 0 in favor of Epidiolex as a treatment for seizures related to two rare forms of epilepsy. Overturning this type of unanimous recommendation would be absolutely extraordinary.
Moreover, Epidiolex currently has Phase III trials in Dravet syndrome, two in Lennox-Gastaut syndrome, one in tuberous sclerosis complex, and one in infantile spasms.
Following approval, GW Pharma will have exclusive sales rights to the drug for seven years in the United States and 10 years in Europe.
Right now, GW Pharma is looking to make its treatments available to 466,000 children in the United States who suffer from epilepsy and another 208,000 in key European markets.
These patients currently consume tens of thousands of dollars in epilepsy medicine each year, drugs that barely make a dent in the number of daily seizures they must endure.
Simply put, this could be a blockbuster drug launch. Solely based on approval for children with epilepsy, annual sales for Epidiolex may
exceed $1 billion five years from now.
|U.S. GW PHARMA COMMERCIALIZATION Approximately 140,000 children in U.S. have treatment-resistant epilepsy.Incidence of Dravet and LGS: 25-35K.Epidiolex would represent a new class of anti-epileptic Drug.Experienced U.S. commercial leadership team in place.Implementation of “high efficiency” commercial deployment model.4,000-5,000 U.S. physicians, expected to require sales force of approximately 50-55. Establish “high touch” patient, payor and physician communication, education and distribution model.Strong relations with patient organizations.|
Even as GW prepares to tackle the epilepsy market, its scientists have been testing high concentrations of CBD on patients with schizophrenia, Type 2 diabetes, perinatal asphyxia, and other types of seizure.
A variant of CBD, known as CBDV, is also showing a lot of promise in other areas, including treating certain social and repetition behaviors associated with autism.
In April of 2014, the company received the coveted FDA “Fast Track” designation for Sativex for “the treatment of pain in patients with advanced cancer.” The drug had already been launched in 15 countries for the treatment of spasticity caused by multiple sclerosis.
The FDA’s Fast Track program grants a drug maker favorable treatment for the purpose of accelerating the development of a drug that both treats a deadly condition and also addresses an unmet medical need.
Ahead of its first drug hitting the market, GW Pharma is already building the foundation to become a top-tier drug maker. It recently hired Julian Gagnolli as president of its North America division. Gagnolli earlier ran the North American sales operations for Allergan plc (NYSE: AGN), a
$97 billion drug and medical supplier.
GW plans to hire 50 to 60 experienced sales pros that have a background in the epilepsy market, and has already identified the 4,000 to 5,000 U.S. physicians that specialize in epilepsy.
This firm is well-armed to pursue an active slate of drug trials and the buildout of a sales force. It has around $250 million in cash in the bank (as of the end of the second quarter of 2016),
and by the end of 2017, should still have around $186 million in cash, according to Merrill Lynch.
The success in treating epilepsy will change how the marijuana-based drugs are perceived. Once the medical community sees how key ingredients such as CBD or THC deliver better results than existing treatments, GW Pharma and other cannabis-focused stocks will be no longer be seen as outliers.
GW continues its steady,
well-capitalized climb in the medical
marijuana business. Epidiolex has had two highly
successful trials recently. That
helped earn it the European Medicines
Agency’s Orphan Drug Designation. This opens GW to a number of financial
incentives through the European Union.
It will file a formal submission for
final approval this summer, around the same time GW will seek
Epidiolex approval with the FDA.
We believe that U.S. physician enthusiasm for a new therapeutic alternative is very high. – GW Pharma PharmaCyte Biotech Inc. (OTC: PMCB) TIER 2
PharmaCyte Biotech Inc. (OTC: PMCB) is thinking inside the “box” with its unique, patented biotechnology.
The company created a platform upon which therapies for several types of cancer and diabetes are being developed.
PharmaCyte calls this special technology Cell-in-a-Box, and it has the potential to lead to some wonderful breakthroughs in the treatment of cancer and diabetes. The company hopes to use the Cell- in-a-Box technology, in combination with genetically modified non-stem cell lines designed to activate cannabinoid molecules, for treatments of difficult to cure diseases like some forms of brain cancer.
If all goes well, the treatments should combat cancers while minimizing or eliminating adverse side effects.
There’s still a long way to go, but a lot of people have worked really hard for a long time to get the company to this point. Founded in Nevada in 1996 under the name DJH International Inc., the company started as an online marketing firm.
Founder Michael J. Daniels (long since gone from the company) recognized a need for good products and services to be marketed online in a traditional manner.
A few years later, DJH pivoted. The company saw a need for better services in the food industry. It changed its name to eFoodSafety.com Inc.
As eFoodSafety, the nutraceutical company developed its Food Safe Program. The program was a formulation of chlorine, Food Safe 1600, ozone, and electronic pasteurization to virtually eliminate all pesticides and pathogens (including E. coli, Listeria, and Salmonella).
It was in the chemistry of this Food Safe Program that PharmaCyte discovered the foundation for its patented Cell-in-a-Box, but it would still be a few years before it came to fruition.
In 2009, eFoodSafety realized the opportunity in medical science, so the company pivoted yet again.
That same year, the company officially changed its name to Nuvilex Inc.
As Nuvilex, the company finished developing its Cell-in-a-Box technology and entered the medical marijuana market through the acquisition of biopharmaceutical subsidiaries.
After years of changing industries, business models, headquarters, and CEOs, the company finally found the right CEO and president with the hiring of Kenneth L. Waggoner in November 2013.
Waggoner has more than 45 years of experience in business management and operations and law. He started his career as an attorney in a private practice.
Eventually, he worked his way up to being a senior partner
with Brobeck, Phleger & Harrison, which has
been named one of the top two law firms in the world that provides services
to biotech companies. At Brobeck, some of Waggoner’s clients
included Amgen Inc., Biogen, Inc., Chiron Corp., and Depo Tech.
Prior to Nuvilex, Waggonner served as vice president and general counsel of Global Downstream operations at Chevron Corp. He has extensive experience and a clear vision for the kind of company he wants to lead.
That’s why he changed Nuvilex’s name to PharmaCyte Biotech Inc. in January 2015. In a press release about the change, he said: “Our new name reflects the tremendous progress accomplished in terms of clinical development and signifies… our transition to becoming a fully dedicated biotechnology company.”
Today, PharmaCyte calls Laguna Hills, Calif., home. And Waggoner has done a great job steering the ship.
In 2014, the company received the FDA’s orphan drug designation for its pancreatic cancer treatment. That same year, the company established a worldwide Diabetes Consortium with major medical institutions and universities. The agreements permitted the development of a breakthrough treatment for insulin-dependent diabetes that combines PharmaCyte’s Cell-in-a-Box with insulin-producing cells.
Now, onto what this “box” actually is.
Cell-in-a-Box is PharmaCyte’s patented live-cell encapsulation technology that serves as a platform upon which treatments for diseases may be built. To accomplish this, the scientists enclose live cells in protective “capsules” that are about the size of a pinhead. After implanting the Cell-in-a-Box, the capsules allow blood to enter and nourish the living cells inside of them, allowing the cells to thrive while inside the body.
What’s more, the capsules are designed to protect the live cells from the body’s immune system. The live cells are too large to escape from the capsules, and the body’s immune system cells are too large to enter.
Using this, PharmaCyte has developed a therapy for cancer that involves encapsulating genetically engineered human cells that convert an inactive chemotherapy drug into its activated, cancer-killing form. These encapsulated cells are implanted as close as possible to the patient’s cancerous tumor.
PharmaCyte completed a successful Phase II trial in 2016 and is awaiting FDA approval to commence Phase III of this pancreatic cancer clinical trial. Therapies for abdominal cancers and diabetes are much less invasive than typical means of addressing both cancer and diabetes. They also don’t put as much wear and tear on the patient’s body.
things continue to progress in this positive manner, PharmaCyte is going to be
big. And that will mean life-changing profits for its investors.
MARIJUANA ECOSYSTEM #6
BANKING AND VENTURE CAPITAL
As you’ve already seen, there is a stark disconnect between state and federal law when it comes to marijuana. The feds say that weed is illegal, period. More than 25 states plus the District of Columbia say that it isn’t.
One serious consequence of this legal “Twilight Zone” is that marijuana growers and sellers
cannot readily obtain the kind of financial services and support that every mom-and-pop operation takes for granted.
Even bankers in states where weed is legal are loath to handle transactions from pot operations. To do so is to invite a raid by the DEA and charges of aiding a criminal enterprise.
But Congress may be poised to address this discrepancy. In March 2018, a bipartisan group of senators introduced the SAFE Banking Act. According to the bill, a depository institution would not be liable or subject to forfeiture under federal law for providing a loan or other financial services to a legitimate marijuana-related business.
Until that or any of several other proposed bills becomes law, a new breed of financial entrepreneurs is stepping into this void. Some provide payment processing solutions that help dispensaries take in all that cash from their customers.
Others offer medical savings plans to help patients pay for their marijuana prescriptions.
And still others provide physical security services that protect those truckloads of cash that are moving from place to place.
Mentor Capital provides upfront capital and startup expertise to “budding” cannabis entrepreneurs.
Compass Diversified Holdings specializes in mergers and acquisitions and invests in small weed companies that demonstrate a solid potential for growth.
Let’s examine these companies one at a time.
Mentor Capital Inc. (OTC: MNTR)
Bankers are a cautious lot. They aren’t accustomed to giving out loans to illegal businesses. And at the federal level growing, transporting or selling marijuana is still very illegal.
That creates a real Catch-22 for pot entrepreneurs. If they want to start a business, they better have some very deep pockets.
Of course most of them don’t have hundreds of thousands
in cash lying around. As another option, these small business owners can turn
to alternative forms of funding.
|THE IRS IS NOT CANNABIS FRIENDLY Right now legal marijuana businesses face a host of competitive disadvantages not shared by their “legitimate” competitors. Because cannabis is a “controlled substance” under federal law the IRS forbids weed businesses from deducting their expenses, the way any normal business would. This disparity more than doubles the tax burden faced by legal marijuana enterprises. Obviously this leaves every marijuana business at a severe competitive disadvantage compared to non- cannabis businesses. As marijuana gains increased legal and social sanction, this tax double standard will likely vanish, making it easier for weed-based businesses to stay afloat and even thrive.|
While regular loans remain hard to come by, these small business owners can offer up a stake in their business to Mentor Capital Inc. (OTC: MNTR). The financial services firm provides upfront capital and start-up expertise.
While Mentor will support a range of pot businesses such as growers and retailers, it prefers to invest in medical marijuana firms. Its mission is to work with cannabis firms that are tackling the issue of cancer wasting, or working
to calm seizures, cure Parkinson’s disease, reduce ocular pressures from glaucoma, or blunt chronic pain.
Clearly, it’s an approach that is resonating with this community, as more than 5,000 shareholders have invested in Mentor’s unique capital structure. As more capital flows in, participating firms get additional cash injections.
And all of this is reflected in the firm’s share price. In effect, if this stock performs well, then all of the participating firms will see an increased value for their businesses as well.
Mentor’s decision to focus on cannabis came in a roundabout fashion. The firm had initially been providing seed capital to cancer-focused medical research startups. But management came to believe that cannabis was one of the best ways to tackle a range of challenges related to cancer. So a few years ago, Mentor’s board decided to officially rebrand the firm as a cannabis financing business.
Mentor won’t invest in just any pot business. It is only
interested in firms that have already scaled up to a certain level, and funding only goes to top players in any given niche or region. This is not a source of funding for the guy in the garage that think he’s come up with the Next Big Thing.
As you might suspect, this is the kind of business that will require patience. Mentor Capital is making investments today that may reap great returns in the future. But in the near-term, the firm’s portfolio companies are just gearing up for growth, and not in a position to generate much in the way of profits. That means Mentor Capital will likely need to raise more money to fund operations and make new investments.
Some extra cash did come its way this January after the firm won a more than $2 million judgment against the Bhang Chocolate Co. Inc. in the U.S. District Court for the Northern District of California.
That cash then helped Mentor expand and invest in the Colorado cannabis
market, starting with Pueblo West Organics LLC.
With all those concerns in mind, it’s still worth noting that this is one of the few firms providing funds to a capital-starved industry, and as along as marijuana remains illegal on a national level, Mentor doesn’t have to worry about a market encroachment from traditional banks.
Mentor Capital appears financially healthy for now. The firm’s $3.2 million annual revenue base is not quite large enough to reach breakeven, although any sale of the firms that it has invested in would provide an injection of cash to this financing firm.
And its stock growth, even if down from its three-year peak, significantly outperformed any non- pharma firm in cannabis between summer 2016 and summer 2017.
Compass Diversified Holdings (NYSE: CODI)
There are a lot of ways to get involved in the weed industry.
There are companies that work with growers and retailers and some that work the financial management aspects. Some focus on social media, others on security.
What these “weed stock” companies have in common is that they are almost all small stock plays that will look very different in a year or two, as this industry grows.
Because these firms are operating at the frontiers of social acceptance, they can be volatile and even risky.
As the weed movement begins looking more and more attractive both to state governments and local economies, and especially to the hard-hit agriculture sector, today’s local weed-focused companies can potentially extend their operations into more and more states.
So there’s the potential for explosive growth.
But again, we’re in unchartered territory here, and to date there are no “roadmaps” that weed companies can follow as they expand.
So every company’s management has to think long and hard about growth plans lest it jeopardize its existing operation. And of course, all executives and managers are not created equal. Some will execute well, others poorly.
Given the amount of uncertainty that attends an investment in weed-based small companies, right now every investor’s best bet is to diversify.
Compass Diversified Holdings (NYSE: CODI) gives you a great way to do just that.
Basically, Compass is a private equity firm that’s publicly traded. It specializes in mergers and acquisitions and invests in small companies with a solid track record for growth. It then seeks to maximize each firm’s potential. Each of its investments is in the $100 million to $500 million range, and it’s usually looking to own the company outright or at least maintain majority control.
The quality of management that Compass provides means that small companies now have available to them a seasoned team to guide their growth and build out their future – a great advantage for any start up.
Compass currently has a broad portfolio of companies in various industries – from off-road suspension manufacturers… to environmental remediation firms… to baby accessories. Compass’s holdings even include food-warming icon Sterno and a Canada-based hemp edibles firm called Manitoba Harvest.
Manitoba started selling hemp oil 17 years ago, and its products are now carried in more than 7,000 health and grocery stores around North America, including in big box giant Costco Wholesale Corp.
The company also now works with hundreds of Canadian growers who use hemp as a “rotation crop” to keep their fields nitrogen-rich without having to use expensive fertilizers.
“In contrast to other plants, hemp aerates the soil it grows in by adding carbon dioxide to it. The crop that follows the hemp will develop better than if it followed than if it followed another,” according to Rocky Mountain Hemp Inc.
As an added benefit, hemp keeps pests at bay, which reduces the amount growers need to spend on insecticides.
It was even influential in getting Canada to pass legislation allowing growers to grow hemp for commercial production.
Like many cannabis-focused firms, Manitoba faces an extraordinary opportunity. It can expand its hemp-based foods business while looking to further explore marijuana edibles as legal restrictions fall. Building a prescription-based drug business would hold even more promise.
Compass looks to either spin off its holdings – like it did with Fox Factory Holding Corp. (Nasdaq: FOXF) – or sell it holdings at a premium
Another nice thing about this stock is that it has a $940 million market cap, which is much larger than most weed stocks. Moreover, Compass has both a top and bottom line to justify that valuation.
As a diversified company, Compass makes its business attractive to stockholders by throwing off a solid dividend that currently stands at a massive 9.2%.
And given the fact that cash flow is growing by around 100% year over year, there’s plenty of revenue to keep that dividend strong. Also, accounts payable are significantly lower, inventories are lower, and net cash from continuing operations is growing substantially.
Compass represents a great way for investors to “back in” to the growing weed industry without feeling overwhelmed by having to pick and choose from small firms whose prospects are not easy to divine.
Even if the weed side of the business doesn’t fully pan out, you’re still
sitting on a stock that’s proven to have some legs.
MARIJUANA ECOSYSTEM #8
Mega-Cap Moves Into Marijuana
Whether or not marijuana ever becomes a Schedule II or Schedule III drug down the road, the move to decriminalize and legalize cannabis is one of the great social sea changes of our age.
And as you’ve just seen, that unstoppable trend is creating profit opportunities in dozens of markets and market segments.
Because this trend is still in its infancy, investors can get in on a bevy of small- and micro-cap companies, any one of which could be the next mega-cap blockbuster.
That said, I don’t want to leave you with the impression that these small, volatile companies are the only way to make a killing off of legal cannabis.
As you just saw with Scotts Miracle-Gro, Compass Diversified Holdings, and GW Pharmaceuticals, nothing could be further from the truth.
Here is one Tier I company that is positioning itself to profit as marijuana goes mainstream. Unlike its riskier cousins, this stock is about as safe and solid an investment as you’ll find.
It’s a big-cap company. It trades on a major exchange with tons of volume. And it pays a generous dividend.
And while you’re not likely to see this stock climb 1,000%, the way a penny stock might, you can expect significant double- and even triple-digit gains from this “marijuana major.”
Microsoft Corp. (Nasdaq: MSFT)
In a move that USA Today described as “defining” and a “watershed industry moment,” tech giant Microsoft Corp. (Nasdaq: MSFT) revealed in June 2016 that it was dipping its toe into the legal marijuana trade.
Microsoft is getting in on the software side of the business. The company is partnering with a California startup called Kind Financial to help ensure that cannabis companies stay inside the legal lines.
For its part, Kind (which created the actual software that Microsoft is about to begin selling) “offers a range of products, including ATM-style kiosks that facilitate marijuana sales,” according to The New York Times.
And so, no, the Redmond, Wash., icon will not be touching so much as a single cannabis seed.
Instead, it will work with Kind’s “government solutions” division to make available to state and local governments the software they need to develop ways to track compliance.
The software will allow governments and entrepreneurs a way to monitor the distribution of cannabis “from seed to sale.”
David Dinenberg, Kind’s CEO,
told USA Today that “Thanks to Microsoft’s huge reach, it’ll be easier for us to target
every state with our compliance solutions. It’s a win-win
for both of us as more states
look to legalize medical marijuana.”
This move is as significant from a symbolic standpoint as it is from a purely financial and business point of view. In one swoop Microsoft has done nothing less than legitimize the cannabis trade in the eyes of many.
Matthew A. Karnes, an advisor to the cannabis industry, told the Times that, “It’s very
telling that a company of this caliber is taking the risk of coming out and engaging with a company that is focused on the cannabis business.”
Dinenberg was even more hopeful: “I would like to think that this is the first of many dominoes to fall.” There are signs that other major companies recognize that marijuana is moving into the mainstream.
For example, Oracle Corp. is working with the state of New York to help administer its Medical Marijuana Program.
And in May 2016, the world’s largest drugstore chain, Walgreens, published a 650-word blog post exclusive about medical marijuana. Titled “What Is Medical Marijuana? Clarifying Clinical Cannabis,” the post went on to answer common questions about medical marijuana and even told readers what to do to if they wanted to obtain it.
It’s easy to read that blog as an opening gambit in what could become an all-out effort on the part of Walgreens to eventually lobby for the right to dispense cannabis.
What’s more, in April, The Washington Post reported that Hewlett-Packard was selling software to
FlowHub, which itself is launching a new point-of-sale hardware and software package for pot companies.
But Microsoft has stepped forward publicly and unambiguously. It is now a player in the legal marijuana trade.
The company will begin by marketing the software to government employees, but hasn’t ruled out marketing through dedicated cannabis events. The Microsoft logo flying proudly at a conference packed with marijuana growers and distributors would be a huge leap forward for the industry.
The software that Microsoft will market uses the company’s Azure platform, which allows users to build and manage applications through Microsoft’s data centers. The platform was designed to be compliant with Health Insurance Portability and Accountability Act (HIPPA) regulations.
“Microsoft is helping us support governments in their expansion of cannabis legislation,” Dinenberg told CNN Money in June 2016. “They’re experienced at providing platforms for government regulation. This is something Microsoft does every day of the week with other businesses in other categories.”
Azure has been growing like a weed since its launch in 2010. For the third quarter of fiscal 2018, Azure revenue jumped 93%.
So Microsoft’s move into the weed space spotlights the way it’s leveraging the cloud to propel growth.
It’s a smart strategy: Market researcher Forrester estimates the cloud market will grow from $55 billion in 2014 to $241 billion by the end of the decade.
Weed is just the latest development in the Microsoft’s exciting cloud story.
Now, no one is suggesting that an alliance with the cannabis markets constitutes anything approaching a “game changer” for Microsoft. The company has a market cap of $755 billion and annual revenue north of $89 billion – don’t look for the stock price to triple.
As marijuana moves into more and more American homes and doctor’s offices, Microsoft’s cannabis compliance investment will increasingly move the needle.
Not too shabby,
considering that Microsoft also pays a respectable 1.7% dividend yield.
That’s nothing to sneeze at an era of low, low interest rates.
|WOMEN AND WEED One of the untold stories about the legal-marijuana industry is the role that women have played pushing it forward. In 2014 a national study found that more than 53 million women have tried marijuana at least once. More than 8.2 million had tried it “in the past month.” A study by ArcView found that “women accounted for 25% of the founders listed in the incorporation documents of cannabis businesses in Washington. Nationally, they are estimated to hold 36% of the leadership positions among cannabis businesses.” According to ArcView, “Women make 80% of family healthcare decisions and 85% of consumer purchase decisions.” The result is that women are, directly or indirectly, behind more than $7 trillion in yearly spending. This economic matriarchy has not escaped the notice of cannabis companies, who have already begun to strategize ways to capture this market. So expect to see strains of marijuana designed to appeal to women, as well as a host of offerings (such as Whoopi Goldberg’s medical marijuana products) geared toward them as well.|
Now, as you’ve seen more than once in this long report, the cannabis landscape is still filled with uncertainty – even as it’s packed with opportunity.
But two things are certain…
One, before the end of this decade we will see more and more states begin loosening restrictions on marijuana. First they’ll allow medical cannabis; then they’ll allow full adult-use recreational weed.
And two, as the legal and social landscape around marijuana settles, and more and more firms and individuals grow wealthy off of weed…
We are going to see a ton of large, established companies stampede for a piece of the action. After all, we’re looking a potential $35 billion market in less than four years.
It can be a challenge to try and suss out which companies will or will not make the leap into legal cannabis. But there are hints, clues, and indications…
For example, obviously the tobacco companies would look to make the leap. After all, rolling and selling “joints” is very similar to rolling and selling tobacco.
The same thing goes for any company that’s already settled and successful in agriculture. If you can grow one crop, you can grow a pot crop.
And naturally “Big Pharma” is watching how the legal weed market shapes up around the country. As things settle, expect more of them to begin buying up medical marijuana companies and dispensaries, in addition to developing cannabis-based treatments of their own.
What follows is a list of five companies that stand the best chance of getting into legal marijuana. As you study these firms, please keep in mind that these are “wild card” stocks. We can’t say for sure when, or to what degree, they’ll make their move.
We can point out, though, that these are established firms.
They have money, experience, executive leadership, and a proven track record in the marketplace.
Once they make a move into cannabis, if they ever do, you can expect that all of them will probably be successful.
So all of them bear close watching.
Legal Weed Wild Card #1
GB Sciences Inc. (OTCMKTS: GBLX)
While firms like CannaGrow Holdings aim to gear up for massive production volume in states where recreational pot is already legal, other firms that grow cannabis want to stay on the medical research end of the business.
Las Vegas-based GB Sciences Inc. (OTC: GBLX) focuses on the research and development of medical marijuana. It produces medical-grade cannabis, cannabis concentrates, and cannabinoid therapies, applying a healthy dose of biotechnology in the process.
The state of Nevada in mid- 2017 granted the firm a license to sell into the recreational use market that went legal on July 1, 2017. GB noted that dispensaries
where its medical-grade products are carried saw huge increases in customers, one of which noted
- times as much traffic as during the medical only sales period of recent years.
But, primarily, think of GB Sciences as the tech support team for any medical research firms that want to grow very specific strains of pot.
For example, the firm’s TissueBLOX
system provides a blueprint for the right growing equipment and also shows
growers how to produce genetically identified strains of cannabis
without the use of seeds. Researchers can’t risk using different strains of pot if they are looking to get consistent results from their clinical trials.
GB helps growers at every step of the cultivation process. Its CureBLOX tools help growers to cure the plants to reduce moisture to desired levels, right at harvest time. Curing the plant at the right temperature and humidity is the only way that growers can ensure that a plant is free from pathogens that can impact medical research.
GB Sciences also recently won a coveted contract to provide the Louisiana State University (LSU) AgCenter with cannabis for its research. GB Sciences is also awaiting word on its patent application for a chronic pain and heart treatment compound.
In April 2018, GB said it was planning a Phase 0 clinical trial to gather valuable human data on its cannabis treatment of early to moderate Parkinson’s.
This isn’t just a business cooked up by a bunch of quick-buck opportunists. The firm’s leadership has the pedigree you usually find at a leading biotech firm.
GB is led by Chief Science Officer Dr. Andrea Small-Howard and also has a Big Data expert Dr. Long Nguyen along with botanical expert Dr. Ulrich Reimann-Philipp.
The firm’s scientific board is led by immunologist expert Dr. Helen Turner, small molecule expert Dr. Tony Ortiz, clinical investigator expert Dr. Daniel Chueh, orthopedic expert Dr. Alfredo L. Axtmayer, and liver disease expert Dr. John Abroon. Each of these medical researchers is convinced that marijuana represents the next big breakthrough in the treatment of diseases and the relief of pain.
You’ll note that we mentioned a Big Data expert among that group.
This is because GB takes a unique approach to finding the best ways that marijuana can benefit patients. The firm ties together the key traits of the active ingredients within cannabis with various symptoms and diseases.
After poring over the preclinical and clinical data produced from thousands of peer-reviewed studies, the firm is now focusing on the most effective ingredients in pot in seven therapeutic categories. These include cancer treatments, cardio protection, metabolic syndrome, pain management, neurological disorders, and inflammation.
This is a very cost-effective way of making major breakthroughs. The firm doesn’t conduct expensive clinical trials. It simply looks for way to find diamonds in the rough among research programs that have already been completed.
Dr. Small-Howard, is convinced that this approach can accelerate drug development, from the typical 15-20 year time horizon down to just 3-5 years. This would reduce the cost of identifying and developing new drugs to just one-tenth of what a regular drug might cost.
One way such a small firm can pursue such big ambitions is by awarding shares of stocks to any partners that play a helpful role in the firm’s research and sales efforts. That’s just what GrowBlox does.
In effect, GB is focused on the initial discovery of promising compounds, while partners at universities handle pre-clinical trials, CROs handle clinical trials, and pharmaceutical partners handle distribution.
These efforts are already starting to bear fruit. Nearly 200 cannabis-related trials have been registered with the National Institutes of Health. And this is where the various pot-growing tools and knowledge we mentioned earlier really pay off. GrowBlox can provide its research partners with high quality and customized strains of pot.
Of course, this is a young firm with much to prove. But this is a clearly unique approach to the fast- growing field of medical marijuana research.
Legal Weed Wild Card #2
Lindsay Corp. (NYSE: LNN)
As marijuana becomes legalized for recreational purposes, we’re going to see an explosion of large- scale cannabis farming.
Competition is going to force growers to make every effort to both cut costs and to take maximum advantage of economies of scale.
In addition to those concerns, cultivating marijuana comes with a host of other problems. The “weed” is notoriously hard to grow. It requires a delicate balance of sunlight and darkness, as well as carefully adjusted and monitored ratios of oxygen, nitrogen, water, and other nutrients.
The Omaha, Neb.-based Lindsay Corp. (NYSE: LN) is the kind of firm that can allow cannabis growers to scale up to maximum efficiency at minimal cost.
With facilities in seven countries, Lindsay manufactures farm and con-struction equipment along with road and railroad building materials. It employs more than 1,300 people worldwide.
But the company is probably best known as the maker of the Zimmatic brand of high-performing “pivot” irrigation systems.
These systems take advantage of Automated Irrigation Management System (AIMS) control panels to allow growers to precisely program water, fertilizer, and chemical applications.
Features like these
will save growers money and labor (by eliminating
repeated forays into the fields to monitor water levels)
and also make it
possible to “set it and forget it” when adjusting the balance among the
nutrients marijuana needs.
The company’s irrigation products have received increased attention during the current worldwide water shortage.
California has been particularly hit hard. In July 2016 the National Weather Service reported that in Los Angeles, the previous five years have been the driest ever in the 140 years records have been kept.
According to the U.S. Department of Agriculture (USDA), California produces more than 33% of America’s vegetables and almost 66% of its fruits and nuts.
And by all accounts California will produce the bulk of the nation’s legal marijuana.
The state already allows medical marijuana, and there are currently more than 2,100 dispensaries in the state. In November 2016, California voters legalized recreational weed. So the number of growers will increase.
Those weed growers, facing drought conditions and water restrictions, will turn to firms like Lindsay, and its pivot irrigation systems, to keep the water flowing and the weed crop growing.
Lindsay will be able to pick a lot of low-hanging fruit.
According to the USDA’s 2013 Farm and Ranch Irrigation Survey, more than 90% of the irrigated land in California uses old, inefficient methods such as gravity or flood irrigation. Lindsay’s pivot systems use 45% less water than the other methods.
Lindsay pays a dividend yielding 1.27%.
Legal Weed Wild Cards #3 and #4
Altria Group Inc. (NYSE: MO) and
British American Tobacco PLC (NYSE ADR: BTI)
We round our list of more than two dozen ways to play the legal cannabis market with two “wild card” tobacco stocks.
In a world where pot pipes may soon be less controversial than cigarettes, the idea that tobacco companies would want a piece of the action is self-evident to the point of truism.
Think of it this way: The reason electric cars are no real threat to, say, General Motors, is that as soon as it’s clear that demand exists for electric cars… GM will start making and selling them.
The same goes for marijuana.
“Big Tobacco” already has farms, distribution and storage infrastructure, access to capital, and a sprawling, trained, and motivated sales force.
Each of these assets is up and running, and standing by ready to shift into cannabis the moment it is profitable to do so.
In other words, the only reason people aren’t lighting up a Marlboro Joint instead of a “Marlboro Light” is that Phillip Morris hasn’t started making them yet.
They probably will start making
them sooner than most folks realize.
|WHAT IS “VAPING”? “Vaping” is an alternative to smoking. The “vaper” inhales water vapor through a hand-held, personalized device called a vaporizer, which heats a water-based liquid (called in some circles ‘e-juice’) into vapor. The liquid can be infused with nicotine, in which case the vaporizer is called an ‘e-cigarette.’ Various flavors can be added to the liquid as well. Enthusiasts claim that vaping is safer than inhaling a traditional cigarette, and comes with no foul odors or second–hand smoke. Needless to say, marijuana smokers were quick to apply the e-cigarette to their indulgence of choice. One 26-year-old weed vaper told BuzzFeed News in 2015 that, “If I’m going to partake I might as well do so in a manner that doesn’t increase cancer.”|
In fact, in January 2016, Phillip Morris International announced that it was investing $20 million into an Israeli company that is looking to market an inhaler for the medical marijuana market.
Both Altria Group Inc. (NYSE: MO) and British American Tobacco PLC (NYSE ADR: BTI) are giants in their field.
Altria is a component of the S&P 500, while BTI is one of the top five tobacco companies in the world. We’ll take each in turn.
Altria, a Fortune 200 company based in Virginia, already owns Phillip Morris, the largest tobacco company in the United States. It also owns…
- U.S Smokeless Tobacco Co., makers of the iconic Copenhagen and Skoal brands
of smokeless tobacco…
- John Middleton, a leading producer of cigar and pipe tobacco…
- Ste. Michelle Wine Estates, a collection of 44 wine estates, many in California and the Pacific Northwest…
- Nu Mark, which focuses on innovative ways to consume tobacco, such as via so “vaporizers”…
- Phillip Morris Capital Corp., which invests in a portfolio of “leveraged leases” in things such as aircraft, power stations, rail cars, and real estate.
Notice that (except for the last one) each of those firms supplies a market for something – cigarettes, cigars, wine – the users of which could find a ready substitute in legal marijuana.
That means that Altria could potentially offer its legal weed, not just to cigarette smokers, but to a whole spectrum of existing customers.
Wine drinkers in particular are an attractive market for weed producers.
Like wine, marijuana comes in a bewildering variety of flavors, potencies and strains. Wine drinkers are already oriented to “connoisseur culture.” It’s only natural to think they could be tempted toward marijuana.
In fact, “pot enthusiasts are increasingly starting to style
themselves more like sommeliers [wine stewards],”
says a recent report by Vox Media.
As for British American Tobacco…
The London-based company is a leader in 55 markets. Of the more than 1 billion smokers around the world, BTI sells to 125 million of them under renowned brands such as Kent, Dunhill of London, Pall Mall, Benson & Hedges, and Lucky Strike.
BTI outsources its cultivation to more than 90,000 contracted farmers worldwide, according to the company. In 2015 it employed 50,000 people to sell 663 billion cigarettes, made in 44 factories in 41 countries.
In 2013. BTI became the first international tobacco company to introduce e-cigarettes in the UK.
Imagine all of that know-how, man-power, and capital devoted to producing and marketing legal cannabis, an idea that might not be far from the minds of BTI’s leaders. The company website carries tantalizing references to “leading the Next Generation Products category” and to meeting the “evolving needs” of consumers.
BTI has even dipped a toe into the medical markets. According to the company, BTI “became the first tobacco company to have a nicotine product licensed as a medicine following receipt of the relevant licenses… We are now working on the large-scale manufacturing and commercialization of this new product.”
The stock has a primary listing on the London Stock Exchange (LSE), but also trades on the New York Stock Exchange (NYSE).
Both BTI and Altria have traded at least 10% below future expectations and remain “buy” recommendation among analysts.
In addition, both stocks are known for paying fat dividend yields.
Legal Weed Wild Card #5
Cronos Group (Nasdaq: CRON)
I rarely added stocks to The Roadmap to Marijuana Millions’ model weed portfolio in the first 12 months of its existence.
In fact, I only did so twice.
But Cronos Group intrigued me because it reminds me of Berkshire Hathaway Inc. (NYSE: BRK.A).
That’s because, like Warren Buffett’s company, it’s a conglomerate – except this is a conglomerate of cannabis firms.
Like Berkshire Hathaway, Cronos is a holding company. Through its various subsidiaries, this Toronto– based company is positioned to profit from both medical and recreational marijuana sales in several Canadian provinces, and it’s already made its first wave of advances into foreign markets.
And that position strengthened
considerably when Cronos uplisted to
Nasdaq on Feb. 27, 2018.
CEO Michael Gorenstein is a razor-sharp businessman with great vision. He demonstrated this while a partner at New York investment firm Alphabet Ventures and before that as vice president and general counsel of Saiers Capital. The Wharton School at University of Pennsylvania-educated Gorenstein also picked up a deep background in cross-border M&A while a corporate attorney at Sullivan & Cromwell.
He now steers the ship for Cronos, whose fleet of companies and investments all hold licenses under
Heath Canada’s medical marijuana program.
Let’s take a look at five of them…
- Peace Naturals Project Inc. is the crown jewel of Cronos’ holdings. This Stayner, Ontario-based operation is licensed to produce and sell medical cannabis and cannabis oil.
Gorenstein let us know in May 2017 that Peace Naturals was on the brink of announcing a huge expansion. It delivered a few days later with the surprise groundbreaking of a 315,000-square-foot expansion that will include more efficient growing facilities, extraction labs, and R&D space.
This campus is to be “Cronos’ global center of excellence” going forward. This will be important because, as Canada fully legalizes recreational marijuana by summer 2018, product availability could become a concern. The firm is also in the midst of building out a new, 286,000 square foot facility on site, and begin cannabis production there in the latter half of the year.
- Cronos also fully owns In the Zone Ltd., which will focus on the Canadian recreational market once it gets going in 2018. For now, this Armstrong, British Columbia-based company cultivates and sells medical-grade marijuana.
Between Peace Naturals and In the Zone, Cronos has the two largest Canadian provincial markets covered.
- Cronos owns about 21.5% of Whistler Medical Marijuana Co. (WMMC), its organic investment. WMMC is a grower and dispenser certified by the Fraser Valley Organic Producers Association.
WMMC’s grows its products in soil – near the famed resort town of Whistler, British Columbia – without chemicals. That appeals to the same kind of consumers who have fueled companies like Whole Foods Market Inc., United Natural Foods Inc., and Hain Celestial Group Inc.
Apart from its nine smokable varieties, Whistler also grows and sells 19 kinds of organic cannabis oils.
- Cronos holds about 2% of Hydropothecary Corp. (OTC: HYYDF), the only firm authorized to produce cannabis in Canada’s Quebec province. The Gastineau-based operation doesn’t just have a “first-mover” advantage – it has the only-mover advantage right now.
And my contacts believe Quebec is going to be a bit of a bear when it comes to implementing fully legalized marijuana. The longer Quebec’s often contrarian and combative provincial leadership drags its feet on expanding legal cannabis, the longer Hydropothecary operates as a virtual monopoly, even if it is a smallish and conservative market.
- Finally, ABcann Global Corp. (OTC: ABCCF) is another company Cronos owns a piece of (6%). ABcann, which produces medical-grade cannabis out of Napanee, Ontario, was one of the first companies to successfully seek a Canadian medical marijuana license.
But it’s not stopping there…
Gorenstein is busy building loyal customer bases for Cronos products. For example, Peace Naturals presents its goods as medicine, not part of any counterculture movement.
“Your grandma may not feel comfortable in a bright neon-lit place and using some fancy vape pen,” Gorenstein said. “It has to be about medicine for them.”
|PROTECTING YOUR GAINS We’re investing in this frontier sector because of the monumental profits that can be made. The kind of huge gains we’ve made so far – and that we’ll see more of – don’t typically come from low-risk, blue-chip stocks. That’s why I often warn against investing only what you can afford to lose when it comes to such pioneers. In addition, I often advise you to take some gains when a big success comes along. Here’s what I mean… When you make 100% gains on a stock, take a “free trade” – sell half of your shares and essentially play with the house’s money – and then lock in a “trailing stop” that guarantees you walk away with at least 50% gains on the play. One year after the release of The Roadmap to Marijuana Millions, we had an impressive nine triple-digit gainers in model weed portfolio. What’s more, none of the nine were still at their respective peak levels from the previous 12 months. You can be a gambler who goes all-in – or you can take some wins along the way. The choice is yours. Personally, I like to cash in every now and again. It makes days like Zynerba’s mid-year freefall a lot easier to bear.|
Cronos is still not to the point where it is efficiently turning revenue into consistent profits, but that’s common in frontier industries.
Given its diversified plays throughout the industry, Cronos looks like a bargain at less than $10 per share. Truly, Peace Naturals alone is likely worth more than Cronos’ $1.15 billion market cap.
And the firm keeps on expanding its footprint, at home and abroad…
It’s begun a joint venture, in March, with MedMen Enterprises USA LLC, to create a Canadian-branded cannabis retail chain.
In February, Cronos began a joint venture in Australia, called Cronos Australia, to produce and distribute medical cannabis in that country. It’s
started planning construction of a 20,000-square-foot indoor facility that’s expected to produce up to 2,000 kg of pot per year.
Cronos has launched a joint venture with Israeli Kibbutz Gan Shmuel, dubbed Cronos Israel, to produce and distribute medical cannabis.
And the firm has begun distributing medical cannabis in Germany through a five-year exclusive agreement with German pharmacy chain G. Pohl- Boskamp GmbH & Co. KG.
If Gorenstein keeps executing his strategy, especially with the international plays, Cronos will hand its investors life-changing profits.
Some Concluding Thoughts
There you have it. More than two dozen ways to play
the burgeoning market for legal weed.
Again, experts say the market for legal weed will hit $35 billion before the decade is out. So there’s a lot of money on the table here, and someone is going to grab it. It might as well be us.
Many forces are pushing for cannabis to come out of the shadows and into the mainstream – doctors, millennials, medical researchers, and a host of “potrepreneurs” eager to service millions of avid consumers of cannabis.
As you’ve just seen cannabis prohibition is on its last legs.
And of course we watched the November 2016 elections, when voters in eight states decided to legalize recreational or medicinal marijuana.
The results of that effort will decide the near-future of legal weed, and the fortunes of the companies featured in this report.
We’re also going to keep our eyes peeled for any signs that large conglomerates are taking a keener interest in weed.
As we saw with Microsoft (cloud software), Altria and BTI (tobacco), and other established firms, cannabis could very well present the next great opportunity for existing industry leaders across a variety of market segments.
What’s more, once the cannabis landscape settles, we should expect that, rather than go head-to-head with local firms that enjoy a head start in the weed industry, large companies will instead go on a buying binge, and snap up the best startups and small-to-midsized firms.
And no matter what happens from now, rest assured that we’re going to keep our eyes on the investment opportunity that legal marijuana represents.
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