Deloitte: Total Canadian Marijuana Sales to Hit $7.17 Billion in 2019
Legal Use Expected to Rise by 35%
When Investing Remember, There’s More Than One Way to Skin a Cat
The marijuana market and industry have grown so far and so fast in the last year that it is sometimes difficult to get a handle on it but one thing is clear. It is going to be a huge market.
A report on the emerging marijuana market by Deloitte puts legal, illegal and medical marijuana sales in Canada at $7.17 billion for 2019. According to a May 9, 2018 CBC story The Canadian Imperial Bank of Commerce pegs Canadian marijuana consumption over the next two years at 800,000 kilograms and that by 2020, the recreational market will approach $6.5 billion. To put that sum into perspective $6.5 billion is more than Canadians spend on liquor.
As of August 29, 2018, according to Bloomberg, the biggest Canadian marijuana producer, Canopy Growth, TSX: Weed, was trading at $58.39 a share and had a market cap of $12.569 billion.
The soaring prices of licensed producers may make many decide that investing in marijuana is just too expensive, however, there is more than one way to skin a cat.
There are a number of ways to invest in the marijuana gold rush that don’t involve spending the mortgage money. It isn’t just the licensed growers that are growing in value. Suppliers to the industry will gain value as well, and may offer much more affordable entry points. Think fertilizer suppliers, hydroponics lighting suppliers and marijuana greenhouse builders.
One company in this vein is Radient Technologies, (TSXV: RTI) trading at $0.99 a share as of August 29, 2018. Just to set this up a little, That Deloitte report linked at the top of this blog predicts that six out of ten Canadian marijuana consumers will opt for edibles as opposed to smoking. Radient makes marijuana extraction equipment that the company states offers higher and more pure yields at a lower price than any other method. The company holds a Dealers License from Health Canada for its research and development laboratory and expects to gain an ACMPR license by the end of this October. The company also has a partnership with Aurora to process marijuana for medical marijuana cannabinoids. Radient is expanding its reach to Europe.
It has also applied to the US Food and Drug Administration to consider its MAP technology, patent pending, as a method to reduce nicotine levels in tobacco. The company offers exposure to the medical marijuana market, edibles and the hemp market which largely consists of protein and consumer health supplements. The company is in the process of expanding its facilities.
Namaste Technologies, (TSXV: N) $1.84 as of August 29, 2018. Namaste Technologies has a chance at becoming the Amazon of Pot. The company is a medical marijuana licensed producer through subsidiary Cannmart. It is also much more than that.
Namaste started out as a medical marijuana e-commerce hub. The company believes that it is the largest online medical cannabis retailer in the world with operations in 20 countries. It has the majority market share in Europe and Australia, as well as operations in the UK, Canada and Germany. It is now entering the Brazilian and Mexican markets. Along with filling prescriptions Namaste also distributes vaporizers and accessories.
Its newest wrinkle is Namaste MD, which has been launched in Canada, an application that works on iphone and Android devices that allows medical marijuana consumers to book a video conference with a doctor, acquire a prescription and then fill the order with either a same day or two day delivery.
Through the application Namaste will also offer advice on the best strain to fit the prescription and offer a variety of growers’ products as well as imported medical marijuana. Given the success of Amazon and the public’s predilection for online ordering Namaste MD may very well prove a winner.
In Canada we tend to look only at our own markets when considering our marijuana stock options. When we look at Canadian powerhouses like Canopy Growth or Aurora we really don’t take into account their international operations or ambitions.
While Namaste offers international exposure to a market that is only growing larger so does up and comer Crop Infrastructure Corp. Trading on the CSE as CROP, shares had reached $0.29 by midday on August 29, 2018.
CROP was formed to address the problem that many licensed medical and recreational marijuana producers face in both emerging and American markets where recreational marijuana has been legalized. While marijuana has been legalized in numerous American states the federal government has not legalized consumption and federal regulations prohibit traditional sources of financing from lending to the marijuana sector.
One way to look at CROP is to see it as a REIT, a real estate investment trust because it owns, operates or finances income producing real estate.
As an investment vehicle CROP fills the financial need by providing the capital needed to set up marijuana production facilities from, buying the land to building the access roads foundations and greenhouses. The company makes its money through attractive leasing and management fees.
CROP Infrastructure Corp. loans capital to purchase real estate, which is leased to the licensed producers. The company receives a 60% preferential payback via lease and management fees on greenhouse infrastructure related equipment, until its deployed capital is returned in full. Once its investment is repaid in full, CROP’s 30% interest in the real estate & infrastructure will receive dividends indefinitely.
The company is a savvy operator, the cannabis being grown at its Washington State operation costs $200 a pound to grow or $0.44 a gram. The company has operations in California, Nevada and Washington State, Italy and Jamaica. Eventually it plans to operate in every jurisdiction that is legal including Canada, partnering with best in class producers. Crop also has a joint venture in dispensary applications in West Hollywood and San Bernardino. It has developed a portfolio of 15 cannabis brands and has the US and Italian distribution rights to a line of 55 topical cannabis products from the Yield Growth Corp. The company recently announced that Greg Douglas, the former CEO of Jamaica’s Cannabis Licensing Authority had joined Crop as a member of the Executive Advisory Board, with a special focus on Jamaican operations.
This blog should not be construed as investment advice. Investors should and must perform their own due diligence when considering stock investments.