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How to Profit From the Global Cannabis Craze

How to Profit From the Global Cannabis Craze

Mykhailo Pavlenko | Dreamstime.com

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Monday, 17 September 2018 05:20 PM Current | Bio | Archive

Recreational cannabis will be legal in Canada by mid-October. Nine states and Washington DC have legalized cannabis for recreational use. This means you can buy cannabis like a case of beer if you are 21 or over.

And sales are booming.

The North American cannabis market was worth $9.2 billion in 2017, according to market research firm BDS Analytics. By 2027, they expect it to be worth $47 billion, which is about the size of the $60 billion US wine industry.

That’s 17.8% growth per year.

The Alcohol Industry Is Betting on Cannabis

“This is the first time anything like this has happened since Prohibition,” said Rob Sands, CEO of Constellation Brands.

This company is the brewer of the popular beer Corona, which is betting big on legal cannabis. It announced a $4 billion investment in Canadian cannabis grower Canopy Growth Corp. (CGC) last week.

The major wager from the beverage giant is a bet on cannabis-infused drinks. But they’re not the first.

Dutch beer behemoth Heineken has already launched Hi-Fi Hops, a non-alcoholic cannabis-based beer. Denver-based Molson Coors is also developing a cannabis-infused beverage.

The alcohol industry is hedging its bets for good reason. Global alcohol consumption has been stagnating for years.

Take a look at these charts:


Source: The Economist

Consumption across the board has been flat for a decade. The world’s three largest alcohol markets—Germany, the UK, and the US—have seen average alcohol consumption fall by 15% since 1995. France, Russia, Japan, and Mexico have also seen consumption rates fall.

The “Sweet Spot” for Growing Marijuana

I visited a privately held Canadian company called PharmaCielo Inc. to find out exactly what makes marijuana companies tick.

The company’s chief operating officer told me it all comes down to efficiency. And Colombia is the most efficient place to grow marijuana on the planet.

Colombia sits in the “sweet spot” for growing marijuana. Not too hot. Not too cold. And it gets the perfect amount of rainfall.

Being near the equator, Colombia gets steady levels of sunlight year-round. In North America, the amount of sunlight varies, and marijuana grow operations must use timers to maintain the right level. In Colombia, Mother Nature does the work for you.

That’s why marijuana companies have started relocating their operations to Colombia. That includes companies that are taking investments from the alcohol industry like Canopy Growth, Aurora Cannabis, and Aphria Corp.

But with increasingly more investors flocking to this industry, finding value gets harder.

Finding Investment Opportunities

Cannabis stocks have been surging big time.

In the last year, the three largest cannabis stocks have soared an average of 330%.

  • Canopy Growth (CGC): +560%
  • Aurora Cannabis (ACBFF): +265%
  • Aphria Corp. (APHQF): +165%

Rapidly rising prices in any industry means it’s harder to find companies at a good price. But the cannabis industry still has plenty of undervalued gems.

My recommendation is to consider companies that the alcohol industry finds attractive. This is an existential bet for them — and I’m sure they did thorough research before making the move. That means look for firms with operations in Colombia like Canopy Growth, Aurora Cannabis, and Aphria Corp.

Robert Ross is the senior equities analyst at Mauldin Economics and a core member of the portfolio management team since 2011.

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Rapidly rising prices in any industry means it’s harder to find companies at a good price. But the cannabis industry still has plenty of undervalued gems.
cannabis, profit, pot, marijuana
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2018-20-17
Monday, 17 September 2018 05:20 PM
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