(+) Going Green: An Investor's Guide to the Marijuana Industry

The war on marijuana is coming to an end and investors do not know it. Very few industries have captured the imagination of Wall Street and Main Street just like cannabis. With the legalization sweeping the continent, many investors believe that they are on the verge of a generational opportunity that cuts across the areas of medicine, consumer goods and lifestyle.

The last 18 months have been marked by several decisive moments for the cannabis industry. The most important moment came election day, when seven US states legalized recreational marijuana. North of the border, the Canadian government recently announced that it would completely legalize recreational grass on July 1, 2018, some 17 years after it sanctioned marijuana for medical purposes.

These seismic changes in public policy have left marijuana stocks green, which has created a wave of support in the mainstream investment community. However, before investors take advantage of marijuana stocks, it is essential to learn about the industry. This will help separate the facts from the fiction in a sector that is bursting with more confidence than its fundamentals for the moment.

Legalization: where we are

Seven states legalized marijuana in one form or another during the November 8 elections. California, Maine, Massachusetts and Nevada voted in favor of recreational grass, while Arkansas, Florida and North Dakota supported the legalization of medical marijuana.

From the investment point of view, much of the excitement emanates from the four states that legalized recreational cannabis. California is widely regarded as the proxy of the marijuana industry. If cannabis can succeed here, it can succeed everywhere.

Colorado has also given investors a good indication of how cannabis reform can generate growth. The sale of recreational marijuana reached $ 1.6 billion in 2016. This translates into $ 200 million in tax revenue for the state. [1]

Although legalization has been a resounding success in Colorado, the result is only a fraction of what California can achieve. For starters, California is eight times larger, and if it was its own country, it would be the sixth largest economy in the world. The move from legalization to business creation in California will have a direct impact on the debate about flower pots across the country.

The state has already pledged to fight a recent federal crackdown on recreational use, with an unusual alliance of government officials and the cannabis industry that is rapidly taking shape . That's because state lawmakers are realizing that marijuana is a big deal and a potential benefit to the local economy. The November referendum also convinced state lawmakers that a large part of the population was in favor of legalization.

Other states to watch

Investors concerned about the federal ban on cannabis should find comfort in the fact that the legalization debate is spreading across the country. In addition to the eight states that have fully legalized recreational cannabis, seven more are debating its future. The legalization debate is beginning to emerge in Delaware, Rhode Island, New Jersey, Vermont, Missouri, New Mexico, Kentucky and Texas, a sign that they may be the next to go to polls.

Legalization was barely abolished in Arizona last November, with 51.3% of residents voting against Proposition 205, a law that would have allowed recreational use.

Source: Business Insider. States where marijuana is legalized.

Canada

Marijuana is generating so much enthusiasm in Canada, which should legalize the recreational use of the plant in the not-too-distant future. In early April, the federal government introduced legislation to amend the Controlled Drugs and Substances Act and the law was formally introduced two days later. The government of Justin Trudeau is expected to apply the law by July 2018. [2]

Although Canada became one of the first countries to legalize medicinal marijuana in 2001, the national marijuana industry is worth only $ 100 million (do not forget not that Canada is one-tenth of the United States in terms of population and GDP).

Industry players are now waiting for a provincial law to know who will be allowed to sell recreational cannabis. To date, 40 marijuana grow ops have been granted by Health Canada. Most of these companies are already licensed to sell marijuana to patients through the mail order system.

Growth of the Marijuana Industry and Future Potential

Perhaps no other industry has suffered more from pent-up demand than marijuana. In the United States, the plant is banned federally since 1937. It is 80 years of accumulated demand that meets the black market. During this period, there has been little investment opportunity until the recent growth of medical marijuana companies.

In one year, marijuana went from an obscure and esoteric industry to a multi-billion dollar company that gave birth to the very first exchange-traded fund (ETF). Horizons Medical Marijuana Life Sciences ETF (HMMJ) began trading on the Toronto Stock Exchange in April, ushering in a new era for investment in marijuana.

According to Arcview Market Research, legitimate sales of marijuana reached $ 6.7 billion in 2016, an increase of 30% over 2015. Sales are expected to reach a CAGR of 25% until the end of the year. in 2021 to reach $ 20.2 billion. All of this, and only half of the American states have legalized marijuana to a certain extent. Analysts say that only high-speed Internet and cable TV have had a greater growth trajectory than cannabis.

In Canada, the legalized recreational herb could ignite an industry of nearly $ 9 billion, eclipsing the combined sale of beer, wine and spirits, according to Deloitte. It is estimated that 600,000 kilograms (over 1.3 million pounds) of weeds will be required to meet the anticipated demand. This is much more than what the country's licensed growers are able to grow for medicinal purposes.

Clearly, there are many reasons to be optimistic about marijuana. The industry is already drawing parallels with the dot-com era, which has provided investors with a rare opportunity to generate huge wealth over an extremely short period of time.

How to invest in marijuana

In terms of growth, very few industries can compare to cannabis. Like other industries, major marijuana companies can be bought and sold as shares in the open market. In North America, these shares are available on the Nasdaq, Toronto Stock Exchange, TSX Venture Exchange and US OTC markets. Marijuana stocks traded over the counter contain the following symbol: OTCMKTS .

OTC is a decentralized market where investors can exchange with each other by e-mail, telephone and other electronic means. In an over-the-counter environment, the broker acts as a market maker, indicating the prices at which he is willing to buy or sell a particular security. An over-the-counter transaction can be conducted without anyone else being aware of the price at which the transaction was made. [4]

Investors who wish to access over-the-counter securities must open an account with a broker who allows over-the-counter trading. Since over-the-counter securities are not listed, there is no central exchange governing the market. Essentially this means that all OTC trades must be driven by market makers, a type of broker-dealer that competes for customer orders. Usually, over-the-counter securities can be traded on a discount brokerage or a full-service brokerage, including online trading accounts.

Almost any type of pharmaceutical or marijuana stock can be traded on the over-the-counter market. OTC provides access to businesses ranging from large-cap conglomerates to small- and large-cap growth companies. Since most marijuana stocks are still in an early stage or in the development phase, they are generally not eligible for the OTCQX Venture market, which includes over-the-counter stocks generally considered to be of better quality.

Companies listed on the OTCQB are currently required to report to a major regulator and have more information for investors. Companies listed on the Venture Exchange have a green tick on the official OTC website indicating that their information is verified. The "audited" titles are those whose profile has been confirmed by a representative of the OTCQB during the last six months. An increasing number of marijuana companies have already visited the OTCQB.

It should also be noted that although investment in OTC shares is more accessible than ever, this avenue is considered riskier than conventional stock exchanges. This is because many companies on unlisted stock exchanges are very small, making them subject to wild fluctuations and increased volatility. These characteristics define most marijuana stocks, regardless of the trade in which they are listed.

Investors who trade marijuana stocks over the counter or through a conventional stock exchange should generally avoid companies with very little information. These companies can be extremely illiquid, adding unnecessary risk to your portfolio. [5]

Marijuana Index

The Marijuana Index is one of the easiest ways for investors to keep track of the most important cannabis companies in North America. The index and its subcomponents track major stocks operating in the legal cannabis industry in the United States and Canada. Of course, the index is divided into two sub-country indexes: the US Marijuana Index and the Canadian Marijuana Index. Each company being tracked is assigned to one or the other index, depending on the location of their main business activities.

The three indices began trading on January 2, 2015 and received an initial value of 100.00 points. The marijuana index is equally weighted, which means that each stock gets the same importance as the other members of the basket. This is also the case for the US and Canadian sub-indices. The indices are rebalanced quarterly on the last day of March, June, September and December.

As of October 25, 2017, there were 311 companies listed in Marijuana Stock Universe .

The United States. The Marijuana Index is a balanced benchmark of the top 20 cannabis companies in the country. These societies and their associated symbols are shown below:

The Canadian Marijuana Index is an indicator of ten of the twelve best-selling marijuana stocks in Canada. This list includes:

Introduction to the Marijuana Industries

The marijuana industry is more diverse than it seems on the surface. Although weed growers continue to receive most headlines, the industry involves a wide range of companies that cover nearly a dozen areas. In what follows, we present investors to 11 industries operating in the broader marijuana sector (source: The Marijuana Index ).

Agricultural Technology : The agricultural technology industry includes companies that contribute to the production and cultivation of marijuana by providing technologies, equipment and supplies to farms. Companies : Scotts Miracle-Gro Company (SMG), Zerez Holdings (ZRZH), Solis Tek Inc. (SLTK)

Pharmaceutical / Biotechnology : The pharmaceutical / biotechnology industry represents companies focused on the research and development of drugs and pharmaceuticals involving cannabinoids. This industry accounts for the largest share of the US marijuana market. Companies : GW Pharmaceuticals Plc (GHPH), Insys Therapeutics Inc. (INSY), Axim Biotechnologies Inc. (AXIM).

Consumer Devices : The Consumer Device Industry includes companies involved in the development and sale of personal consumer devices, such as inhalers, for consumers of cannabis. Companies : Namaste Technologies Inc. (N: CNX), Wildflower Marijuana Inc. (SUN: CNX), Wildflower Marijuana Inc. (WLDFF).

Culture and Retail Trade : Cultivation and retail includes businesses that grow and sell marijuana plants and related products. In Canada, this industry is dominated by licensed producers. Companies : Canopy Growth Corporation (WEED: CA), Aurora Cannabis Inc. (ACB: CA), Cronos Group Inc. (APHQF).

Hemp Products : The hemp products industry is primarily concerned with the production and sale of hemp and related products. Hemp is part of the same plant species as cannabis, but has a lower concentration of THG and a higher concentration of non-psychoactive compounds. This makes it suitable for various products, such as paper, textiles and clothing. Companies : Marijuana Medicine Inc. (MJNA), Earth Science Tech Inc. (ETST), Lexaria Bioscience Corp. (LXX: CNX).

Investing and Finance : Companies involved in the investment and financing of cannabis, such as holding companies and asset managers, are also part of the dynamic sector marijuana. Companies : CannaRoyalty Corp. (CRZ: CNX), First Harvest Corp. (HVST), Amfil Technologies Inc. (AMFE).

Marijuana Products : The marijuana-based products industry is comprised of companies involved in the development and sale of marijuana-infused products, such as drinks, oils and lotions. Companies : Cannabis Sativa Inc. (CBDS), Radient Technologies Inc. (RTI: CA), Lifestyle Delivery Systems Inc. (LDS: CNX).

Other auxiliaries : This industry groups together companies that contribute to the cannabis industry in general and do not fit into any of the other categories. Examples include companies that produce breathalyzers and screening kits, cannabis clinics and developers of marijuana vending machines. Companies : Canada House Wellness Group Inc. (CHV: CNX), Cannabix Technologies Inc. (BLO: CNX), Lifeloc Technologies Inc. (LCTC).

Real Estate : Companies that develop, own or rent commercial properties for the purpose of cannabis trading are part of the real estate marijuana industry. Companies : Praetorian Property Inc. (PRRE), Innovative Industrial Properties Inc. (IIPR), Grow Condos Inc. (GRWC).

Secondary Services : The secondary services industry groups companies that provide general consulting and business services to marijuana growers and retailers. Consulting services include market research, business development, branding and logistics. Companies : Cannagrow Holdings Inc. (CGRW), Novus Acquisition and Development Corp. (NDEV), Americann Inc. (PAC).

Technology and the Media : The technology and media industry includes companies that provide software and media solutions to businesses and cannabis users. These services include business software, e-commerce services and trading platforms for cannabis companies. Companies : Helix TCS Inc. (HLIX), Eco Science Solutions Inc. (ESSI), Bang Holdings Corp. (BXNG).

Despite all the promises of recreational weeds, most viable marijuana investments are concentrated in the medical / pharmaceutical biotechnology industry – at least for now. Investors looking for an immediate impact on their portfolio are more likely to succeed with a medical producer.

However, recreational grass is expected to be a huge money maker in the not-so-distant future. Favorable government policies, growing public support and a thriving growers industry make recreational marijuana a promising business in North America.

How to build a green wallet

Many of the same strategies involved in building a portfolio of traditional stocks also apply to the marijuana industry. Things like asset allocation, long-term strategy and in-depth fundamental analysis are critical to long-term success. At the same time, however, the marijuana industry has several unique characteristics that investors must seize.

For starters, the marijuana industry is flooded with speculative investments and oversized stocks that do not have a viable business model. This is not always easy when you look at the relative success of marijuana stocks. This means that many investments in marijuana are overvalued.

Marijuana stocks are also very volatile. After peaking after the legalization, many of the leading stocks found themselves in the doldrums in the first quarter, as political uncertainty undermined confidence in the sector.

In this context, the following strategy is likely to give the best results for investing in this booming sector.

1. Diversification is key

Diversification is the cornerstone of investment. For a sector like marijuana, where picking winners and losers is not easy, diversification is even more important. At present, there are over 250 shares in the marijuana sector. Among them are the future billion dollar companies as well as the failures that will eventually go bankrupt. A diversified portfolio of marijuana stocks is therefore needed to survive what could be a volatile year for the sector.

2. Gain indirect exposure

There are direct and indirect ways to obtain exposure to an area. Although most marijuana lovers rush to producers and retailers, they should also consider other companies in the value chain that make the company possible in the first place. These companies certainly benefit from marijuana, but they are not linked to it and will not go bankrupt if the industry faces an obstacle.

A company like Scotts Miracle-Gro (SMG) provides the kind of indirect exposure that our portfolio needs to survive the volatile fluctuations of the market cycle. SMG is not a stock of marijuana, but provides special fertilizers and supplies to the pot industry. In other words, it benefits from the growth of the sector without being completely linked to it.

3. Perform fundamental analysis

There are a lot of nice-sounding marijuana stocks right now, but that should not be your investment criterion. You should not rely on an intuition to choose a winner in a sector subject to strong price fluctuations. Remember: you are not picking the S & P 500, but from a lot of companies that have extremely limited experience in the market.

So you should be reconciled with the intrinsic value of the action (ie, what it really is worth). It means reviewing your business model, profitability, revenue, return on equity, and overall growth strategy. In other words, read carefully the financial statements of the action.

4. Do not wait for a retreat to enter the market

Cannabis stocks can be volatile, but that does not mean you should wait for a downturn before investing. Although this strategy is common to investors, it is rarely profitable. It can be painful to buy an action at the highest of 52 weeks, but it's even worse to see this company defy your expectations of a retreat. [6] The good news is that investments in marijuana are still new, so the good ones still have a long way to go before they reach their ceiling.

5. Développer un plan à long terme

Il est parfaitement acceptable d'attribuer une certaine partie de votre portefeuille à la spéculation (c.-à-d., Choisir des actions que vous croyez pouvoir être achetées maintenant et vendues avec un gain substantiel plus tard). Cependant, votre stratégie globale de portefeuille doit être basée sur des objectifs à long terme. C'est le seul vrai moyen de maximiser le succès de l'investissement.

En tant qu'industrie naissante, la marijuana offre beaucoup de croissance à long terme. Il y a beaucoup de raisons d'être optimiste sur ses perspectives à long terme. Cela seul devrait dissuader les investisseurs d'être trop myopes avec leur stratégie de portefeuille de cannabis.

6. Sachez que vous investissez dans une industrie avec une croissance de premier ordre

La raison pour laquelle de nombreuses personnes entrent sur le marché du cannabis est la réalisation qu'elles peuvent investir dans une opportunité unique. La légalisation est attendue depuis longtemps et la demande refoulée ne ressemble à rien de ce que nous avons jamais vu. Cela a été clairement reflété dans l'accélération rapide de l'industrie en si peu de temps. La croissance et l'adoption généralisée du cannabis légal sous toutes ses formes devraient motiver les investisseurs qui cherchent à exploiter ce secteur.

Légalisation et avenir des investissements dans la marijuana

La légalisation de la marijuana dans une grande partie de l'Amérique du Nord est un changement de paradigme à la fois en termes de conscience publique et de politique publique. Bien que la voie à suivre soit truffée d'incertitude, la tendance générale est à la tendance à une réglementation plus souple du cannabis récréatif et à un soutien accru à la recherche médicale.

Le secteur de la marijuana est en plein essor en ce moment, mais ne se négocie qu'à une fraction de son plein potentiel. Les énormes chiffres des ventes que nous avons vus en 2016 sont probablement un signe des choses à venir, car le secteur profite de l'augmentation de la demande et de l'acceptation grandissante de la consommation de cannabis. Ces facteurs pourraient conduire au prochain marché haussier de l'industrie de la marijuana – un marché qui pourrait rivaliser avec le boom des communications Internet.

Du point de vue de l'investissement, les stocks de cannabis peuvent encore être relativement bon marché. Comme toute autre industrie, il y a beaucoup de ratés qui essaient de tirer parti de cette dynamique. Mais il y a beaucoup de choix solides avec des perspectives de croissance fantastiques pour les investisseurs avec un peu de courage et beaucoup de patience.

Sources

[1] Trey Williams (12 février 2017). "Les recettes fiscales de la marijuana atteignent 200 millions de dollars dans le Colorado alors que les ventes dépassent 1 milliard de dollars." MarketWatch.

[2] Debra Borchardt (13 avril 2017). "Le Canada fait de grands pas vers la création d'une industrie légale de la marijuana de 8 milliards de dollars." Forbes.

[3] Debra Borchardt (3 janvier 2017). "Les ventes de marijuana ont totalisé 6,7 milliards de dollars en 2016." Forbes.

[4] Investopedia. Marché au comptoir.

[5] Kesavan Balasubramaniam. "Comment acheter un stock de gré à gré?" Investopedia.

[6] Jeremy Lutz (2 mars 2017). "7 conseils essentiels pour réussir avec les stocks de cannabis." Ino.com.