Big Business Starting To Look At Canada’s Newest Industry

UNITED KINGDOM: Twenty years ago, it was vilified as a ‘gateway drug’. Now, cannabis has grown into a big business, with the potential to become even bigger as laws are scheduled to change to reflect shifting social attitudes towards marijuana and investment picks up to take advantage of increased demand.

And make no mistake: the demand is huge. In the United States, the legal cannabis industry is worth $6.7 billion, according to Bloomberg.  Actively watching the industry include: Altria Group (NYSE: MO), Insys Therapeutics (NASDAQ: INSY), GW Pharmaceuticals (NASDAQ: GWPH), Teva Pharmaceuticals (NYSE: TEVA), MedReleaf Corp (OTC: MEDFF) (TSX: LEAF.TO)

In Canada alone, cannabis is estimated to reach an $8 billion market with 150,000 people using marijuana for medical purposes. Yet estimates indicate that number could increase dramatically after pot is legalized next year: by 2021 there could be 3.6 million legal users consuming 420,000 kilograms of pot.

With the legal cannabis industry still in its infancy, the potential for growth is huge. At the moment, legal growers supply only 31,000 kilograms of Canada’s weed, or 5 percent of anticipated total medical and recreational demand. To avoid bottlenecks and keep supply coming, Canada’s pot-growing business must take off, and fast. Dozens of underground producers, who have grown illegally for years, could start supplying existing demand within a few years, if they can obtain licenses and build infrastructure.

Cannabis is virtually unique: an emerging sector tainted for years by high-risk and regulatory uncertainty, it has yet to be penetrated by tier-one capital, as institutional investors have stayed away.

Investing in cannabis can be tricky. Publicly-traded companies are scarce, most are small-cap and penny stocks, and finding those with strong prospects for growth can be challenging. The amount invested globally into cannabis ventures remains relatively small, only $220 million in 2016. Yet that’s a significant increase from investment in 2013, which was a scant $13 million.

But the opportunities for smaller investors to get in the ground floor are significant, especially when you look at what some newer firms are bringing to the table and the likelihood that larger firms, particularly those in the tobacco trade, will get in on the action as well.

Here’s a look at some companies that are getting into the cannabis game:

Philip Morris

It makes sense for a major tobacco company to be interested in cannabis. Back in the 1960s, when social interest in marijuana began to grow, rumors circulated that Big Tobacco was buying up brand names for marijuana products while considering investments in cannabis production.

A crackdown on drug use and a pushback against marijuana quashed that attempt, but with the norms changing, a few of Big Tobacco’s most prominent members are re-evaluating their interest in cannabis.

A major reason is the declining sales of cigarettes. For the last several decades Big Tobacco have focused on emerging markets as smoking faded in the developed world. But marijuana represents a lucrative new market, one which is attracting new attention from the larger tobacco firms, albeit in a slow, hesitant fashion.

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