Legalization is spreading and continues to make a strong case for informed cannabis investment. In recent months, we’ve witnessed a sea of change in the position of cannabis in the U.S. marketplace, coupled with burgeoning investment opportunities. To date, nine states permit recreational marijuana. Even our nation’s capital, the District of Columbia, approves. And most states have legalized medicinal pot use.
Major breakthroughs have continued this year. In early 2018, California became the latest to legalize recreational use.
Most recently, Vermont became the first state to legalize marijuana not by a ballot measure, but by formal enactment of a law through its legislature.
The shift becomes nothing short of spectacular when former House Speaker John Boehner, who once opposed marijuana growing, is ready to serve on the board of directors for a cannabis holdings company. And Senate Majority Leader Mitch McConnell has emerged as a proponent of legal industrial hemp farming.
There is no time like the present to invest in cannabis, and the satellite industries supporting its production. Here are some factors that may influence your stock selections and earning potential, should you decide to invest in this emerging sector.
After a Rocky Start, 2018 Opens Up a Smoother Legal Landscape
As this year opened, Attorney General Jeff Sessions overturned an Obama-era policy: a federal hands-off approach to state marijuana laws. Suddenly, states were concerned that all the business investments in legal cannabis would be in jeopardy.
Since then, though, the president seems to be overriding Sessions, speaking of the issue as a states’-rights matter that needs to be recognized as such on the federal level.
Growers and dispensaries now expect legislation to prevent the federal government from interfering with states’ legalization, and that’s good news for marijuana stocks. Although an actual federal law that declares cannabis legal might not occur for years, state regulation is proving to be up to the task of regulating the substance.
Because state law controls cannabis sales, the sector is working with something of a patchwork. Even amid this complexity, there is financial opportunity. Companies that offer compliance tools for the industry are on the rise.
Growers are now looking forward to the day, likely not far off on the horizon, when banks may freely provide services to the sector. Should the federal government ease restrictions as it is expected to do, watch for U.S. marijuana stocks to skyrocket. At that point it will also be easier for international suppliers to enter the U.S. landscape.
Types of Cannabis Companies
A wide variety of businesses make up and support the cannabis sector and are well positioned for financial growth.
There are the growers themselves. These are known as “plant touching” companies, such as California’s Terra Tech corporation.
Then there are the companies that supply energy to the growers. They are in high demand by the large-scale indoor operations that would put too much pressure on the grid if they didn’t have alternative solutions.
A variety of other technology companies are gearing up for the growth of this industry, as are companies that provide a spectrum of supplies.
There’s also Canna-Hub, a developer and manager of cannabis real estate, also known as cannabis communities. Canna-Hub of California has two such developments — and both have transformed small-town economies.
Another ancillary business type helps with employee management. A company called Wurk is an early entrant in the field. Wurk helps cannabis-related firms handle tax rules, payroll deposits, and regulation. With operations in 27 states, Wurk can connect businesses to banks that will work with legal marijuana companies.
Compliance software shows a great deal of promise in this area as well. A vital need in the cannabis sector is the automation of reporting to government agencies. A state that makes cannabis legal has to follow through with regulation. The state will track every action taken with every plant, from seed to retail. Technology is relieving business owners of many small administrative tasks that would otherwise add up to a full-time job.
A leader in this market segment is Green Bits. It’s a firm that provides dispensaries with everything they need to stay in compliance with state rules and regulations. Compliance software is so vital that Green Bits now serves some 1,000 dispensaries in 12 states
Tiger Global, a New York venture capital firm and an early investor in many major tech powerhouses including LinkedIn and Facebook, has now invested in Green Bits. Casa Verde Capital, owned by Snoop Dogg, has also invested in Green Bits, helping to bring the software company more than $19 million in funding.
And there are funds to back companies — the established players, and the startups. Since 2012, when Colorado first legalized cannabis, VC firms have been thriving in the atmosphere around this segment. Venture capitalists have found great rewards with new market players, before their industry becomes settled and stable.
Cannabis Stocks That Merit the New Investor’s Attention
Consider these very well-positioned companies.
Scotts Miracle-Gro
It’s not just your parents’ lawn-care company any more. Scotts Miracle-Gro, through its Hawthorne Garden Company subsidiary, is a key producer of cannabis growing supplies, including lights and hydroponic systems. A front runner as a major U.S. corporation staking a claim in the future of cannabis, Scotts has set its sights on developing an increasingly profitable range of products for marijuana farmers.
Kush Bottles
Analysts expect this packaging maker’s impressive revenue growth, spurred by California’s legalization of medical and recreational cannabis, to rise significantly in the years ahead. California requires child-proof packaging for pot — one of Kush’s strong suits.
AbbVie Inc.
The maker of the FDA-approved cannabis-based drug Marinol, a digestive aid for chemotherapy patients and AIDS sufferers, focuses on U.S. markets. This is a powerful, established front-runner. Yet most analysts believe the best strategy with any stocks is diversification, rather than going solely with a stock such as AbbVie, or relying only on the U.S. market.
A Sampling of Canada’s Rising Stars
Cronos Group Inc.
In February 2018, the Canadian corporation Cronos debuted as the first cannabis growing (“plant-touching”) firm on the Nasdaq exchange. Cronos produces medical cannabis, with an international scope of distribution.
Aurora Cannabis, Inc.
Another licensed producer of medical marijuana in Canada, Aurora Cannabis, Inc., is currently the fastest growing North American cannabis company. With this company, you’ll want to keep an eye on potential dilution of stock.
Canopy Growth Corp.
On April 18, 2018, this medical marijuana company and the Yukon Liquor Corporation entered into an agreement. Canopy will supply Yukon with cannabis products in light of Canada’s forthcoming nationwide legal market for recreational cannabis. This represents a collaboration with the government of Yukon. Canopy is also a selected retail partner in Manitoba, Newfoundland and Labrador.
Want to see more strong players, working in the satellite industries? Take a look at this Pitchbook chart.
How to Start Investing
New cannabis stock investors have a spectrum of entry points available. Which one is right for you? The one that suits your current investment style is likely best.
There are plenty of opportunities in this space to purchase stocks over the counter. Note that this method takes a good eye for inspecting balance sheets. It also means achieving a familiarity with financial facts, such as the companies’ asset-to liability ratios, and likelihood of stock dilution. So before jumping in, put the search engines to use and read, read, read.
You might also enjoy the excitement of getting into venture capital directly through equity crowdfunding. This method, writes Michael Zaytsev in Forbes, is a popular alternative today for entrepreneurs in the cannabis sector.
Fundanna, offering regulation crowdfunding, boasts its credentials as the very first dedicated equity crowdfunding channel for the cannabis sector. The portal enables investments from $100 up to fund startups that are raising up to $1 million a year by opening opportunities to non-accredited investors. Fundanna is clear on a key point for new investors: investing in early-stage businesses is not for the risk-averse among us. Fundanna sets out to inform its subscribers and impart a good working knowledge of the risks, in the interest of empowering small investors to make suitable personal investment choices.
There are also entry points for the most prudent among us. For example, you might already use stock exchanges, and be most comfortable with traditional investing channels.
Late last year, the Alternative Harvest ETF fund, which is based in Summit, NJ and trades on the NYSE Arca, began investing in cannabis firms including the Cronos Group. Their fund offers new investors access to a diverse set of stocks. You can review their top ten holdings as of today, and explore the company’s convenient access to investment products at the core of this sector.
The Big Picture Now
U.S. sales of legal cannabis have more than doubled in the past year alone. This phenomenal growth is driving rapid rises in stock values.
Another large driver in the sector is the forthcoming legalization for the legal adult use of marijuana across Canada. And although the United States is unlikely to see federal legalization any time soon, the states are handling (and benefiting economically from) the sector quite well.
All told, cannabis as an investment is no longer relegated to the margins. Generational wealth will be made in this sector. What is essential for the prospective investor? In-depth knowledge about the companies best positioned to benefit from the shifts in social attitudes and regulatory landscapes.
We welcome the opportunity to offer our readers valuable summaries and insights into one of the most promising and accessible financial spaces open to new investors.
Note: This article provides a general overview of growth opportunities in cannabis stocks and related information. It constitutes neither legal advice nor financial planning advice. As with all capital investments, cannabis stock purchases warrant careful examination based on a range of expert information prior to investment. In a changing regulatory environment, stocks have special inherent risks as well as growth potential.
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