Global Cannabis Industry: Headwinds And Investment Opportunities

The international cannabis trade is five to seven years from taking off.  Standing in the way of full take off is a string of bureaucracy as well as stringent regulations around the world.  The presence of three international treaties that prohibit the movement of cannabis for recreational purposes is one of the tailwinds that has barred the trade from taking off.

Booming North America Cannabis Trade

Amidst the restrictions, some countries have made huge strides on the regulation of cannabis for recreational and medicinal use. Canada is one of the countries that has gone to great lengths not only in lifting a ban on cannabis use for medicinal purposes but also for recreational use.

The U.S. is another country where uptake of cannabis is on the rise thanks to civil legislation on the State level. While the plant remains prohibited on the Federal level, more than 30 states have legalized cannabis use for medicinal use, ten states have legalized recreational use. 

In addition to Canada and the U.S, Germany, Mexico, Netherlands, Colombia, and Mexico are some of the other countries that have legalized the use of cannabis for medicinal purposes. The legalization drive has helped expand the cannabis market place. Analysts at Cowen & Co expect the international cannabis market to present a $31 billion opportunity for producers and investors going forward.

WHO Cannabis Legalization Push

The World Health Organization touting the medicinal benefits of cannabis is another development that signals world powers and bodies are slowly coming to terms with the potential impact of marijuana as a legal substance.  WHO is already pushing for the removal of cannabis from the restrictive Class A, Schedule IV of the 1961 convention.

While the United Nation is yet to follow through on the recommendation, it could be a matter of time before it changes its stance and swims with the current wave.  The U.N. finds itself in an awkward position in part because the legalization of cannabis on the international scene may not go well with some member countries that continue to maintain a tough stance on the plant.

Burgeoning International Cannabis Trade

Amidst the challenges on the regulation front, several companies have found a way to circumvent the international ban on cannabis and its derivatives. North American companies led by the likes of Tilray, Canopy Growth, and Aphria are increasingly fuelling the global cannabis trade. The companies have already started shipping cannabis products to some countries where medicinal use is legal.

Tilray has gone the extra mile to establish a cultivation facility in Portugal to address the growing need for medical cannabis in Europe. Aurora and Canopy Growth have also established operations in Denmark to take advantage of the ever-increasing cannabis opportunity on the international scene.

Canadian companies hold an edge over the U.S. companies when it comes to trading cannabis on the international scene. The fact that cannabis is a banned substance under federal laws means U.S. companies cannot engage in the export of cannabis or its products. U.S. companies are barred from moving cannabis across borders for non-medicinal purposes.

Legalization of recreation use on the international scene is a significant development that would go a long way in fuelling international trade. Countries reclassifying CBD as a permitted medical ingredient should have a domino effect in the expansion of the cannabis market. Until then, cannabis producers and investors may not be able to enjoy the full potential of the cannabis trade.

Cannabis Industry Opportunities

Amidst the headwinds of the regulation front,  one cannot dispute the fact that cannabis industry is slowly becoming big business, reports that consumers spent over $10 billion on cannabis products in 2018 in the U.S. underscores the considerable market opportunity. 

Instant estimates indicate that cannabis spending in the U.S. could surge to $23 billion by 2022. Cannabis investment activity is on the rise as firms and institutional investors jostle for emerging opportunities in the sector.  Investment activity around cannabis skyrocketed to $13.8 billion in 2018 from $3.6 billion as of 2017.

While the growth comes amidst the ongoing federal prohibition in the U.S., one is left to wonder what the market could turn out to be on the lifting of the federal ban.  As more states continue to legalize pot in the U.S., so are debates for the lifting of the federal prohibition reaching Congress.

While the focus for the longest time has been on cannabis cultivators and dispensaries engaged in distribution, those are not the only businesses worth pursuing in the burgeoning sector.  Laboratories focused on cannabis testing are increasingly cropping up, resulting in the creation of job opportunities.

Some firms and individuals have ventured into the businesses of creating edibles and concentrates on taking advantage of the enormous market opportunity.  A litany of professionals ranging from marketers to attorneys is also enjoying booming business thanks to the growing demand for support services.

Jobs within the legal cannabis industry are plenty and split into spheres of plant touching and ancillary.  As the name goes, plant touching jobs revolve around the actual cultivation of the cannabis plant as well as processing and selling.  Plant touching jobs, as well as business opportunities, are subject to the strictest regulations.

Ancillary businesses, on the other hand, refer to companies that provide support services for the actual growth of the sector. They include data platforms as well as point of sale systems, patent processing, marketers, attorneys, and many more.

Cannabis Investment Opportunities

In addition to starting a cannabis business or looking for a job opportunity, there are other ways to take advantage of the growth in the cannabis sector.  Recreational use legalization in Canada and some parts of the U.S., as well as Europe, has given rise to investment opportunities.

Looking for companies to invest in is one of the best plays of taking advantage of the ongoing growth in the multi-billion industry.

Below are some of the biggest companies in the cannabis industry that cannabis-focused investors can look at for gaining exposure to the emerging industry.

PharmaCielo Ltd

Headquartered in Toronto Canada but with operations in Colombia, PharmaCielo Ltd is an ideal pick for investors looking to gain exposure to the business of cultivating cannabis.  The company has made a name for itself on the growing of cannabis at an extreme discount compared to other cannabis cultivators.

The outdoor producer of medicinal cannabis grows at five cents per gram compared to $2 per gram for other producers. The low production costs mean the company can access more markets without having to worry about its costs ballooning.  A distribution channel made up of export licenses to more than 15 countries affirms the company’s edge in the industry.

Khiron Life Sciences

Unlike PharmaCielo, Khiron Life Sciences provides an opportunity to diversify holdings in the cannabis industry.  The company boasts of an array of cannabis medicinal products that allow it to target various facets of the cannabis market.

Khiron is increasingly becoming a pharmaceutical company given the array of cannabis-based products it is working on for trauma treatment.  Expansion of operations with the acquisition of Italian and Uruguayan firms leaves the company well positioned to enjoy robust growth by targeting a broader target market.

Canopy Growth

Canopy Growth operates in 15 countries and an ideal pick for gaining exposure to the international cannabis trade.  It owns a famous brand such as Tweed LBS and DNA certified. The company is in the process of diversifying its product line with the launch of CBD infused beverages as well as vapor and edibles.

With an annual production capacity of 100,000 kg, it remains well positioned to benefit from economies of scale on the international scene on quadrupling production to 400,000KG in coming years.  Beverages could grow to represent a fourth of the company’s overall market.

G.W. Pharmaceuticals

G.W. Pharmaceuticals is an ideal play for gaining access to international cannabis markets.  With operations in the U.K., the company is also selling its flagship cannabis infused product Epidiolex in the U.S.

In the first quarter, the company registered a 1200% increase in revenue a performance likely to continue as the company ramps up commercialization efforts.  The company is currently awaiting regulatory approval from the European Union that will allow it to sell Epidiolex in France, Germany, Italy U.K., and Spain.

Heavy institutional holding underscores the strengthening confidence about the company’s growth metrics and long-term prospects.

Stenocare A/S

Stenocare A/S is a Danish Medicinal cannabis play ideal for gaining exposure to the burgeoning European cannabis market. Despite going public in October of last year, the company remains well positioned to gain access to the broader European cannabis market.

The company has a clear plan to dominate the European cannabis market. Raising capital is not a problem, a milestone that should allow it to pursue strategic investment opportunities for accelerating growth.

 

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This article by Money News National is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Money News National has no position in the stocks mentioned. Thank you for reading.

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