Investors worldwide are thrilled as cannabis cultivation, sale, and consumption is fast-becoming legal in more and more countries. Recently, the United States signed the Farm Bill into effect in 2019, legalizing the cultivation of hemp (as covered in another LGA blog post). This is expected to create more companies and more jobs in various sectors throughout the industry. As a result, publicly-traded stocks in cannabis-related businesses are the talk of Wall Street. In fact, the cannabis industry is expected to be worth $32 billion by 2022 with $24 billion in the North American market alone.
Are you one of those investors drooling over the imminent arrival of these sure-fire stocks? Would you know the names of these companies: Canopy Growth, Tilray, Aurora, and Cronos? They are just a few of the Canadian cannabis companies, who were once not so well-known. That is until their stocks sky-rocketed in the New York Stock Exchange (NYSE) in Fall 2018. Now, they’ve become the “go to” stocks for investors worldwide, who are keeping a close watch as laws catch up with the already profitable industry.
One of the largest cannabis companies in the industry is Canopy Growth Corp. (NYSE: CGC). It made its mark when Constellation Brands (NYSE: STZ) bought around $4 billion of Canopy shares. This was historically significant since it is the largest investment in the cannabis market ever made to date. As a result, CGC is currently investing in other acquisitions in the foreign market, including in Europe.
Tilray (NASDAQ: TLRY), on the other hand, is one of the largest marijuana-producing companies. It hit the news recently when it is market cap increased as high as $28 billion during intraday trading. The company plans to extend its production capacity even more over the next few years. Therefore, it kicked off 2019 by looking for business partners in producing and distributing cannabis-infused alcoholic beverages.
Meanwhile, GTEC Holdings, Inc. (GGTTF), along with its subsidiary, Alberta Craft Cannabis or ACC, has been a top producer of highly prized craft cannabis. They’ve been expanding their market since Canada legalized the recreational use of marijuana in October 2018. GTEC also made its mark as one of the few vertically integrated cannabis stocks in the industry. This means they were given complete control by the government over their cannabis products.
So far, market insiders are confident that the cannabis industry is a safe bet for investors as the market settles down. However, the next few years will be crucial for testing if investments will continue the course as prices stabilize in relation.
Currently, investors’ interest in the cannabis industry has been gaining traction due to its legalization of use unfolding at different levels especially in First World countries like Canada and the United States.
All in all, the global market for medicinal marijuana is expected to be worth £40 billion by 2025. Following the trend, traditional corporations like Coca Cola include plans to introduce their own line of cannabis-infused beverages. Meanwhile, many European pharmaceutical companies are likewise developing their own cannabis-based medicines. This includes other “traditional” brands in pharma like Ananda Developments, Sativa Investments, and GW Pharmaceuticals, to name a few.
With all the enthusiasm surrounding the cannabis industry, investing even at this risk-prone stage is proving to be quite the temptation. In response, cannabis companies are aggressively doing their best to attract more investors by going public and listing their shares on the US exchanges.
However, many more judicious investors still carefully consider their options in buying cannabis-related stocks. For one thing, some states still consider cannabis as illegal under federal law and whether cannabis belongs to the “vice/sin” industry or exclusively in healthcare (i.e. medical marijuana). Furthermore, more careful investors are also weighing the volatility of investing in cannabis companies this early in the game. Nonetheless, there are investors who see the overall picture as even more potentially rewarding. Some of them have already experienced significant high returns after buying a few cannabis stocks.
If you’re a newbie to the stock market, you must acquaint yourself with the difference between common stock and preferred stock. Common stocks are the general stocks we often hear about: equity share with a company wherein share prices and dividends can go higher or lower based on whether the company is profitable or not. Preferred stocks, on the other hand, are more like bonds.
Companies sell preferred stocks to raise capital and in return, offer a specific interest rate to investors. The interest rates can be fixed or not depending on its par value which is usually $25 and can fluctuate over time. Preferred stocks, unlike bonds, can trade on major stock exchanges and are considered to be liquid investments. However, preferred stock shareholders have a lower priority compared to bondholders – if and when a company goes bankrupt. Hence, preferred stocks have a much higher interest rate than bonds. Although somewhat riskier, preferred stocks can be the more intelligent investment.
Today, investment options for cannabis-related companies are still limited due to the risk of its unpredictability. This is why preferred stocks are considered to be a more conservative investment than the common stock. As a preferred shareholder, you will get your capital back before the common shareholders can even receive payments. Preferred stock investors also have the exclusive right to receive dividends before the common shareholders get theirs.
However, be forewarned, buying preferred stock also has its downside. First, the issuing company can redeem the shares at a fixed price. This will affect the upside on the shares and the amount of time before you can receive premium dividends. Second, if the company does succeed, common shareholders will earn more than preferred stockholders. Therefore, it depends on how you see preferred stock: as a good way to get bigger returns on your investment or as a bigger risk as explained above.
On the other hand, all investors can also suffer total losses if the company goes bankrupt!
What to watch out for in 2019? Cannabis industry-focused real estate investment trust or REIT such as Innovative Industrial Properties (NYSE: IIP) reportedly has 72% in stock returns in February 2019. On trend, Canopy Growth is up 72.3%, Aurora Cannabis 56.3%, and Tilray 11.1 %.
Wall Street expects strong year-over-year growth based on IIP’s acquisition activities. The company has acquired 11 properties in 9 states at the end of the fourth quarter of 2018. This is compared to only 5 properties 4 four US states the previous year. Moreover, IIP’s revenue also soared 152% year over year to $3.93 million last quarter. This was made possible by the new properties acquired by the company as well as the increase of base rent for 2 of its leases.
Invest intelligently in cannabis stocks by being well-informed, then watch out for this Canadian cannabis company as IIP makes bigger waves following a deal with the Ontario government, estimated to boom about $80 billion in profit.