The whole marijuana industry is getting heated as a number of larger companies aim to get their cut. Marijuana is estimated to be worth in the region of $50 billion in the USA, with the vast majority of this number being made up by black market sales. But legalization is all but killing off the black market. After all, why would anybody buy toxic weed from a dealer when they can get organic and regulated weed form a shop, grow their own or attain a certified and tested medical brand? What this means is that there is a $50 billion dollar industry up for grabs, and one that is set to grow. And aside from the cultivation and distribution there are hundreds of side industries which can be even more profitable. These include packaging and marketing, vaporizers and smoking materials, specialized medical strains, testing facilities, tier one connoisseur strains, marijuana security services, growing items, cannabis edibles, cannabis topicals and more. There is also a huge movement in terms of the applications of industrial hemp, which could affect the manufacturing world as we know it.
Alcohol and Marijuana
The U.S. distributor of Corona beer is chasing a new type of buzz. Constellation Brands Inc (NYSE: STZ) has agreed to take a 9.9% stake in Canopy Growth Corp (TSX: WEED), a Canadian marijuanacompany. Constellation Brands, which has a market capitalization of approximately $41 billion, has a portfolio of wine, beer and spirits brands that include Corona, Clos du Bois, Charles Smith Wines, Robert Mondavi, Casa Noble Tequila and Svedka Imported Vodka. According the Wall Street Journal, it purchased the stake to pursue development of drinkable cannabis beverages and to get a head start in advance of eventual legalization in the United States. Canopy Growth, the first Canadian LP to trade publicly, recently posted an all-time closing high of C $13.78 on October 11th and closed Friday at C $12.79.
The exact terms of what is the first major cross-industry investment have not yet been disclosed, but Canopy Growth CEO Bruce Linton stated that it was at a premium to the close of 12.79 Canadian Dollars. Canopy Growth had 165 million shares outstanding and fully diluted shares of 176 million including 11 million options as of June 30th and will report its second quarter results by the Fourteenth of November.
The two biggest US exchanges, the New York Stock Exchange(NYSE) and the Nasdaq, have strict requirements in terms of what companies get listed. This means that many new marijuana companies cannot get listed on these exchanges and have to trade Over the Counter. Over the Counter stocks have less information which can throw off many investors, particularly large ones. No serious investor is going to invest in a company without a balance sheet showing how the company operates along with its yearly profit and loss. Otherwise they are investing in a story, however grand it may be. For this reason, many large investors are forced to go to Canada to invest in such firms, with some critics saying that this is costing the US money to Canadas gain. Further, large firms like Constellation Brands cannot invest in marijuana companies as marijuana is still a drug at the Federal level, and as such it was forced to invest in a Canadian company.
The Marijuana Market
It is not currently known what type of market there is for marijuana infused beverages. Many prefer one or the other, and mixing alcohol and THC can be a recipe for disaster in many ways, as they simply do not go well together. Marijuana makes people calmer, happier and more relaxed. Alcohol makes people more energized, extroverted and active. But despite this some retail outlets have been selling marijuana infused cocktails for a price as high as $22, though this seems to be a novelty trend to capitalize on as opposed to a long term viable business plan.
But it goes without saying that the marijuana market is on the way up. Marijuana based drug maker GW Pharmaceuticals are up 1200 % in 4 years, while a company simply called Medical Marijuana is up over 900% in the past 4 years. The growth rate of the whole marijuana industry is estimated to be in the region of 23% a year. This are incredibly good odds, and if you pick the right niches and the right companies the profit can far exceed this number. However, marijuana investing is always a risk and it isdefinitely not a stable form of income. Profits will go up and down and the industry is volatile, and a ruling from a regulatory body could see stocks tumbling. The majority of marijuana stocks are currently losing money, and whether these companies have the capital to keep going needs to be seen. And there is growing evidence that the marijuana industry is being monopolized.
But aside from the risk it is one of the best sectors to invest in, and as an old rule of investing it is better to pick the right sector than the right stock. Think of the housing market in all the years before the crash, where it was hard to lose. Pick carefully and bide your time as opposed to expecting any type of quick wins. In the meantime, expect many more large institutions to come into the marijuana market in the next couple of years. Constellation Brands Inc is just the beginning.