Talk of legalizing marijuana across the U.S. has been growing like a weed.
And as controversial as it may be, it’s also one of the most explosive opportunities we’ve seen. In fact, with recent legalization, marijuana could very well be a $30 billion market in four years. It’s only a $6.7 billion industry right now, up 30% from 2015.
Right now, 29 states and the District of Columbia have legalized marijuana for medical purposes. As for its recreational approval, California just became the eighth state to make it legal.
Again, controversial or not, you can’t ignore the numbers.
California could see $5 billion in revenue from its legalization.
- In Colorado, marijuana sales were up to 4998.19 million in 2015. In the first six months of 2017, revenue was up to $1 billion in sales.
- In Nevada the projection is a whopping $6 billion, while Massachusetts is estimated to see around $1.5 billion in gross sales the first year. Maine is projected to enjoy $290 million in gross sales annually. In Florida, legalization could generate up to $2 billion in annual sales. North Dakota could see $75 million just starting out.
- New Mexico already allows for its medical use but could expand laws, as well, especially to help reduce the state’s massive budget deficit. Within the first year of such sales, estimates say the state could see $60 to $70 million added to the state budget.
- In Michigan, the state is working to secure enough signatures to get legalization on the ballot by November 2018. Even New Jersey has pledged to sign legislation that would allow for the possession and sale of recreational marijuana.
However, it’s not just the U.S. that’s a catalyst. It’s Canada, too.
In fact, they’re looking to legalize its use later this year.
By 2021 analysts say Canada could have nearly four million recreational marijuana users, creating a monstrous $4.5 billion industry. The industry could balloon to $8.7 billion shortly after, as marijuana retail sales just in Canada are likely to surpass beer, wine and spirit sales combined. That’s big money.
Granted, Canada did delay approval of marijuana from July 2018 to August 2018, but we don’t anticipate any further hiccups. The delay makes perfect sense, given that the country’s provinces and territories need between eight and 12 weeks to get ready for retail sales of marijuana.
There’s even a supply-demand issue.
Medical marijuana patients are worried that supply could dwindle when recreational marijuana becomes legal. “I look at what happened in Nevada last summer, Colorado, Washington, Oregon when they opened retail,” said Peter Bernard, president of the Massachusetts Grower Advocacy Council, as quoted by MassLive.com.. “All of them ran out in a week or less.”
These are sure signs of a boom in the marijuana patch we can’t ignore.
Granted, the space is also full of speculation and so-so fundamentals.
However, there are three that have proven themselves to be worthy of investment dollars.
ETFMG Alternative Harvest ETF (MJ)
According to the Fund’s 2017 Fact Sheet:
“The Fund tracks the Prime Alternative Harvest Index, an index created to provide investors with a product that enables them to take advantage of both event-driven news and long-term trends in the cannabis industry as well as the industries likely to be influenced by the medicinal and recreational cannabis legalization initiatives taking place in many locations globally. The index is designed to measure the performance of companies that will benefit from these initiatives, collectively referred to as companies in the cannabis ecosystem.”
As of early March 2018, the ETF was quite oversold at bottom of trend. But given the inflow of $386 million since it launched in late December 2017, there’s plenty of excitement here. Even better, its largest holding, Cronos Group (CRON) just became the first marijuana company to be listed on a U.S. exchange.
Believing the marijuana boom is just getting underway, this ETF is one of the best ways to diversify with major pot names.
Cronos Group Inc. (CRON)
Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across four continents. The Company operates two wholly-owned Canadian Licensed Producers regulated under Health Canada’s Access to Cannabis for Medical Purposes Regulations: Peace Naturals Project Inc. (Ontario), which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd. (British Columbia), which is based in the Okanagan Valley. The Company also has multiple international production and distribution platforms including: Cronos Israel and Cronos Australia.
Now trading on the NASDAQ, shares of CRON were just picking up steam at less than $10 a share, which may be the cheapest it’ll ever be again.
“It’s very significant for the company and the whole industry,” Mike Gorenstein, Cronos founder and chief executive officer, noted with Bloomberg. “It’s a huge moment — just shows the stigma is continuing to erode on cannabis.”
Even more exciting, analysts expect for company revenues to soar to $34 million this year, a sizable jump from $400,000 in 2016.
Kush Bottles (KSHB)
After exploding from less than $2 in November 2017 to a high of $8.50, Kush Bottles did pull back in recent months. However, as legalization just begins to spread, we believe this provider of packaging solutions for the marijuana industry could retest its highs.
That’s because growth is not a problem.
In its most recent quarter, revenue exploded 258% year over year to $8.85 million. Net income was $94,615 as compared to a net loss of $161,000.
According to Nick Kovacevich, Chairman and CEO of Kush Bottles:
“We entered fiscal 2018 with excellent momentum as we saw the impact of the strategic initiatives implemented throughout 2017 start to take hold. Revenues for the first fiscal quarter of 2018 reached approximately $8.85 million, representing a 258% increase compared with fiscal Q1 2017. This strength in the business led to net profits of $94,615 in fiscal Q1 2018. We also saw our cash balance increase to $5.5 million, which we plan to invest towards inventory purchasing, development of proprietary products, and other strategic initiatives. During the first fiscal quarter of 2018, we saw the release of California’s new temporary regulations for medical and adult-use cannabis sales, which took effect on January 1, 2018. California is not only the U.S.’s largest cannabis market, but also our home market where we have already extensively invested in sales, marketing and infrastructure. We consider the legalization of adult-use cannabis sales to be a major opportunity to scale the business throughout 2018 and beyond, and we have made significant headway to establish the Company as a leader in this market. Many of our clients have been granted temporary licenses and we are working with them closely during this hectic transition period as California finalizes its permanent regulations over the next 6 to 12 months.”
OrganiGram Holdings (OGRMF)
OGRMF produces and sells medical marijuana in Canada. As Canada moves to legalize marijuana use on the federal level, the company is ramping up production to capitalize on new market opportunities as an existing licensed producer. An active expansion includes a 15,000 sq. ft. extract processing facility that could prove quite useful, as the market begins to explode.
Net sales have already increased substantially year over year to $6.12 million from $986,676. Margins have improved to 54% from 25%. Net profits jumped from negative $1.276 million to $845,663, as cash flow increased to $72,904 from negative $1.679 million.
BONUS PICK: Canopy Growth (TWMJF)
TWMJF is also a medical marijuana company out of Canada. In its most recent report, the company mentioned revenue jumped 22% over the first fiscal quarter of 2017, and 245% over the second quarter of fiscal 2016. While it hasn’t proven itself to be profitable, sales growth is powerful. Over the last nine quarters, total sales have grown 63% on average to $6.47 million in its third quarter from $1.84 million a year earlier.
BONUS PICK: Scotts Miracle-Gro Company (SMG)
The company, which manufactures, markets and sells consumer lawn products globally is seeing great interest as the company expresses interest in selling to cannabis growers, too. In fact, they’re selling equipment for hydroponics, a method of growing that allows for the production of cannabis after acquiring General Hydroponics. According to The Street, “the company’s revenue for the past 12 month is about $2.6 billion. About a tenth of that comes from their hydroponics business. That should grow, especially now…”