The cannabis industry is expected to reach $50 billion in size by 2026, according to Cowen & Co., making it one of the fastest growing industries in the world. Not surprisingly, cannabis stocks have handily outperformed the market with the Marijuana Index more than doubling over the past year compared to just 24% for the S&P 500 index. Investors have taken a growing interest in the industry as legalization has spread across North America.
In this article, we will look at three subsets of the cannabis industry that investors may want to consider for the best risk-adjusted returns.
Canada has legalized both medical and recreational cannabis on a federal level. Under the so-called AMCPR, licensed producers have the unique right to legally grow and process dried medical marijuana, cannabis oils, edibles, and other derivatives. These products are sold to registered patients and customers through a mail order process, which makes these companies the most pure-play opportunities for investors in the cannabis industry.
The largest licensed producer is Canopy Growth Corp. (TSX: CGC) (OTC: TWMJF), but emerging producers like Emerald Health Therapeutics Inc. (TSX-V: EMH) (OTC: TBQBF) are well-positioned to capture a piece of the market. The latter recently signed a letter of intent to lease up to 32 acres of land in Metro Vancouver, BC, while completing a 100,000 square foot expansion in two phases that will increase its capacity to about 10,000 kilograms per year.
Finally, aspiring licensed producers like Maple Leaf Green World Inc. (CSE: ML) (OTC: MPEFF) and Invictus MD Strategies Inc. (OTC: IVITF) represent opportunities for investors to gain exposure to Canada’s cannabis industry at lower valuations. Maple Leaf also provides investors with exposure to California’s medical marijuana market, while Invictus MD Strategies owns several related businesses that provide diverse exposure to the industry.
Pharma- & Nutraceuticals
Pharmaceutical companies are notorious for generating hefty profits with high barriers to entry for direct competition. The federal government may consider cannabis a Schedule I Controlled Substance with ‘no currently accepted medical use’, but a growing body of research suggests that components of the plant could be helpful in treating everything from childhood epilepsy to pain and nausea in patients undergoing chemotherapy and other cancer treatments.
GW Pharmaceuticals plc (NASDAQ: GWPH) may be the most popular name in the cannabis-related pharmaceuticals space, but GB Sciences Inc. (OTC: GBLX), InMed Pharmaceuticals Inc. (CSE: IN) (OTC: IMLFF), and Tetra Bio-Pharma Inc. (OTC: GRPOF) are among a handful of other companies with an established presence in the space. These companies are taking various unique approaches to unlock real value for investors.
Other companies are focused on over-the-counter versions of cannabinoid therapies. For example, Medical Marijuana Inc. (OTC: MJNA) provide pure over-the-counter cannabidiol (“CBD”) hemp oils to consumers around the world. The company’s 100% hemp-based, THC-free CBD oil products have enabled it to obtain regulatory approvals for importation into countries like Mexico and Brazil, along with the U.S. territory of Puerto Rico.
Functional foods represent a third industry subset that may be attractive to investors given the increasing interest in energy shots, protein powders, and related products. Cannabis may seem incompatible with these types of products on the surface, but hemp has many attributes that make it an exceptional ingredient for functional foods. For example, the substance is high in protein, provides many antioxidants, and contains potentially-beneficial CBDs.
Lexaria Biosciences Inc. (OTC: LXRP) and NutraFuels Corp. (OTC: NTFU) have focused on increasing the bioavailability of CBDs in functional foods and supplements. Lexaria’s lipid encapsulation technology helps ensure that CBDs are fully digested, while NutraFuels’ oral sprays help CBDs immediately reach the bloodstream through the mouth. These companies are developing many CBD-based products through partnerships and licensing agreements.
Laguna Blends Inc. (OTC: LAGBF) is another company that’s working closely with Isodiol – a private company focused on manufacturing hemp-based CBD oils – to develop a line of CBD-based functional foods and beverages.
The cannabis industry has evolved over the past couple of years to include companies in many different sectors. Consulting firms and grow light providers may be the most obvious plays, but investors may want to consider licensed producers, pharmaceutical companies, and functional food makers as alternatives in the space. These companies could offer investors unique opportunities to capitalize on a market projected to be worth $50 billion by 2026.
By Kelly Weimar