Thanks to the legalization of recreational cannabis in Canada and many parts of the United States, the North American cannabis industry is booming. New licence holders are entering the market every week, and the demand for both recreational and medical cannabis continues to rise. As a result of recent legislation and increased interest in the cannabis market, many investors are eager to take advantage of a very new and promising opportunity.
However, the future of US markets is still relatively unclear, as the legal status of cannabis varies by state. Currently, only 10 states have completely legalized cannabis for recreational and medical use, while an additional 21 states have legalized cannabis strictly for medical use. Though analysts predict that more states are soon to introduce similar legislation, it remains unclear whether the federal government will follow in Canada’s footsteps and enact sweeping cannabis legalization nationwide.
This means that investors can have greater confidence in Canadian businesses and markets, as the legislation is nearing its one year anniversary, and all data points to an industry that is rapidly expanding to meet high demand. That said, many risk-averse investors will be skeptical of such a new and ever-changing market. So, how can investors proceed in the Canadian and US markets without taking on too much risk? Which avenues will provide the best returns? And what can you anticipate for the future of cannabis stocks?
We will answer all of these questions and more below, but first, let’s look at the current state of cannabis markets in North America:
How Have Cannabis Stocks Performed So Far?
Initial excitement over cannabis legalization led to rapid spikes in stock prices. However, in most cases, these investments fell back down when initial reports showed lackluster profit margins. Cannabis shortages in certain territories have contributed to fewer sales, and licence holders have been forced to take on more debt in order to expand and meet the growing demand. As a result, many investors have been disappointed with the current state of North American markets.
However, short term stagnation following new legislation is normal, and shouldn’t detract from the industry’s long-term potential. Nonetheless, investors need to know what to expect going forward. In order to better understand the market’s current stagnation, let’s look at how a few of the top Canadian stocks have performed so far:
Canopy Growth Corporation (WEED or CGC)
Canopy Growth Corporation produces and sells medical and recreational cannabis in Canada, and is often cited as one of the largest producers of cannabis in the world. The company was established in 2013 and has grown exponentially since then. The stock was introduced on the Toronto Stock Exchange as WEED, and later became the first cannabis producer listed on the New York Stock Exchange on May 24th, 2018 as CGC.
While Canopy Growth has invested in rapid expansion and grabbed a large share of the Canadian market, the stock has been somewhat volatile in its first year. The stock began trading at $29.01 USD, only to falter in the first few months, before skyrocketing to a high of $51.53 USD per share. As of August 2019, the stock price stands around $23.70 USD per share, while the market share is $8,39 billion USD.
Aurora Cannabis Inc. (ACB)
Aurora Cannabis Inc. is the second largest producer of cannabis in Canada, behind Canopy Growth. Founded in 2006, Aurora Cannabis was introduced on the Toronto Stock Exchange and later the New York Stock Exchange. While its performance has been somewhat better than Canopy Growth, its market cap is much smaller at $5.66 billion USD.
The stock has seen a 5 year low of $0.20 USD per share, and a high of $10.81 USD. As of August 2019, the stock price stands at $5.64 USD per share. Much like Canopy Growth, Aurora Cannabis has seen lackluster profit margins as a result of its aggressive expansion efforts.
Cronos Group, Inc. (CRON)
Cronos Group, Inc. is a producer and distributor of cannabis in Canada and Germany. Since 2012, Cronos Group has focused on expanding its reach in both foreign and domestic markets. However, its current market cap is significantly smaller than both Canopy Growth and Aurora Cannabis, at around $3.72 billion USD.
The stock was first listed on the New York Stock Exchange as CRON on February 27th, 2018. It opened at $7.55 USD per share, and later reached a one-year high of $21.92 USD. However, as of August 2019, the Cronos Group stock rests at $11.03 USD per share.
While most investment analysts recommend buying and holding all three of these stocks, their value is currently trending downwards, as investors have overcome their initial excitement and lowered their short-term expectations. As you can see, when it comes to the Canadian and US markets, investors will need to play the long game in order to see quality results.
Which Investments Will Provide The Best Returns?
While it is impossible to pick a clear “winner” among the current licence holders, there is still plenty of room to grow in the industry. This means that investing in a new business endeavor may reap the greatest rewards. While black market sales of cannabis are steadily declining, the Canadian government insists that more license holders are needed in order to completely eradicate illegal cannabis sales.
As more licence holders and retailers enter the market, it will increase competition and drive down prices for consumers, eliminating (or at least greatly reducing) the viability of a cannabis black market. Additionally, this will help meet the high demand for cannabis products and help grow the Canadian industry across the board.
Whether you intend to put money in existing Canadian cannabis producers, or you wish to save your capital to develop your own cannabis business, now is a good time to invest in the Canadian market. That said, you will need to be patient, as the market is still young and relatively volatile. Once edibles and other cannabis-derived products enter the market, there will be more standardization and an even greater need for new licence holders and retailers.
Though the Canadian market looks very promising going forward, the US market is murky and difficult to predict. Interest in cannabis legalization has certainly grown in the US, with 62% in favor of nationwide legislation. Nonetheless, it remains a complex issue, and is made more complex by the varied laws and regulations in each state. So, as it currently stands, investing in the Canadian market is a much safer and profitable option.
Learn More About Cannabis Investments with CLE
While it is hard to predict how cannabis markets will evolve in the wake of Canadian legalization, rapid expansion and high demand indicate a promising future. As a result, there has never been a better time to become a cannabis investor or licence holder. The demand for both recreational and medical cannabis is high, and the market continues to grow every day.
That said, many of those interested in starting or growing a cannabis business are still not familiar with the specifics of the law, and will need assistance navigating the regulations. If you plan to cultivate or sell medical grade cannabis in the future, you will want to be prepared for the legal process. For more information on obtaining a cannabis cultivation licence or cannabis retail licence in Canada, consult the Cannabis License Experts today!