How Best To Invest In The Marijuana Boom-Part 1

- August 6, 2017

The Marijuana Boom is just getting underway and is forecast to grow by a CAGR of 30% pa to 2020.  In other words, the so called “Green Rush” is real, driven by new legislation that has been legalizing marijuana both for Recreational (adult use) and Medical use.  Marijuana Stocks have been doing well in 2017,  but there is still plenty of upside left.  North American Marijuana sales grew by 30% in 2016 to $6.7 Billion as the legal market expanded in the U.S. and Canada, according to a report from Arcview Market Research.   If you select the right stocks or buy a Marijuana ETF, the upside potential is amazing given it is still in the very early stages.  This is Part 1 of a 3 part series on How Best To Invest In Marijuana Stocks.

A major catalyst would be a bill called Compassionate Access, Research Expansion and Respect States, or CARERS, Act gains traction. The bill was introduced by U.S. Sen. Rand Paul (R-Kentucky), Sen. Corey Booker (D-New Jersey) and Sen. Kirsten Gillibrand (D-New York).  It would essentially end the federal prohibition of medical marijuana and improve research.  Actually several bills were introduced and can be found here.

CNBC cited that around 6% of Americans over age 12 regularly (at least monthly) use marijuana, and the marijuana market in the US alone could be worth USD 10-40 Billion.  Other estimates put its worth as high as $100 Billion.  Now that’s a big market of regular customers. The big question is what companies to invest in as the Marijuana Boom heats up to the point it’s almost smoking,  as you can see from the chart below.

Source: The State Of Legal Marijuana Markets – 4th Edition

The chart and table below highlight the growing acceptance and legalization of marijuana across the US.  As of late 2016, medicinal marijuana use is legal in 28 states, and recreational marijuana is legal in eight.  Other countries such as Mexico, Canada (medical marijuana is legal), Australia (medical marijuana is legal), Israel and others are also moving or have legalized marijuana use.

 

Source: The State Of Legal Marijuana Markets – 4th Edition

US States Where Marijuana Is Legalized

Source

How To Invest In The Marijuana Boom?

The safest way to gain exposure to the marijuana boom is through a Marijuana ETF.  However, there are not many marijuana ETF’s to recommend that investors buy as a core holding.   If you want to add a few speculative marijuana stocks, I would add those.  I will get to the individual stocks I prefer in Part 2 and 3.   Ideally those marijuana stocks that have exposure to Canada and Australia with recreational marijuana use exposure.  The question on whether the current Attorney General Jeff Sessions will try and crack down on the States that have legalized it for recreational use is still up in the air.

Horizons Medical Marijuana Life Sciences ETF (TSE:HMMJ)

HMMJ tracks the performance of the North American Medical Marijuana Index.  The Index is designed to provide exposure to the performance of a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry.  Currently the fund has 65.7% of companies listed in Canada, 23.7% in the US, and 10.5% listed in the Great Britain.

The index is calculated as a gross total return index in CAD and adjusted quarterly.  As the Fund and Index names suggest the emphasis is on the “medical marijuana” companies.  Some examples include areas such as a supplier of medical marijuana and/or medical cannabis, biotechnology companies that are engaged in research and development of cannabinoids, companies that offer hydroponics supplies and equipment clearly aiming to increase efficiency in marijuana cultivation and companies mainly engaged in leasing property to medical-use cannabis growers.

North American Medical Marijuana Index (CAD) Since Commencement

Source

North American Medical Marijuana Index Holdings

Source

Emerging AgroSphere ETF

The Emerging AgroSphere ETF is a cannabis-focused ETF and is currently awaiting approval from the SEC, and hoping to list in the US.  The ETF is from ETF Managers Group LLC (ETFMG).  The fund will focus on legal medical marijuana companies and other businesses in the medical cannabis supply chain.  There is still doubt as to whether the US SEC will allow a marijuana ETF to list in the US.  A link to Emerging AgroSphere ETF prospectus can be found here.

 

Conclusion Part 1

Marijuana legalization for both medical and recreational use is growing in popularity in the USA and globally.  Each new legalization decision will serve as a catalyst to propel the sector higher.  Moreover,  Canada is likely to legalize recreational marijuana use in 2018, and possibly Australia in the near future.  On the flip side legislators can reverse previous decisions and make marijuana illegal, so investors need to be mindful of this risk.  However, it is still illegal at the Federal Level which creates some problems for marijuana companies even in States like CA and CO.  Such as they are unable to get financing from a Bank.  However, the tide is turning as the numbers above suggest.

If you are of the view that marijuana will continue to be legalized and hence removed from the black market.  Then there is enormous growth ahead for this sector.  I would recommend cautious investors buy the ETF.  More aggressive investors to buy the ETF and/or a basket of marijuana stocks to be discussed in part 2.

In part 2 of the series, How Best To Invest In The Marijuana Boom,  I will look at a basket of marijuana stocks to consider.  Below are some of the stocks I will be looking at.

Some names include AeroGrow International (OTCMKTS:AERO), Aphria Inc (OTCMKTS:APHQF), Cannabix Technologies Com NPV (OTCMKTS:BLOZF) and 22nd Century Group Inc (NYSEMKT:XXII) which gained 27% today when they announced they will be added to the Russell Microcap Index.  Other companies include  Canopy Growth Corp Com NPV (OTCMKTS:TWMJF) and Cannabis Sativa Inc  (OTCMKTS:CBDS).

 

 

 

 

 

 

 

 

 

 

 

 

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  1. By How Best To Invest In The Marijanna Boom-Part 2 on August 10, 2017 at 1:15 pm

    […] In this group, I would select Aphria Inc (TSE:APH) (OTCMKTS:APHQF) stock as my favorite as they are already showing a small profit, and have a similar pathway to higher revenue and profit.  Followed by Aurora Cannabis (TSE:ACB) (OTCMKTS:ACBFF),  Organigram Holdings Inc (CVE:OGI) (OTCMKTS:OGRMF) and Canopy Growth Corp (TSX:WEED) (OTCMKTS:TWMJF) Stock to add as a speculative buy. You can read Part 1 on How Best To Invest In The Marijuana Boom here. […]

  2. By How Best To Invest In The Marijuana Boom – Part 3 on August 13, 2017 at 11:52 am

    […] marijuana stocks that can prosper by supporting a rapidly growing marijuana industry.  Part one I covered the marijuana sector, its promising 30% CAGR growth outlook, the medical and […]

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