A Successful Regulated Market Growing Up Around Cannabis
$AMZN, $TAP, $NKE, $TLRY, $CGC, $STZ
Michigan’s vote Tuesday to become the 10th US state where the recreational use of cannabis is legal is adding more momentum to a trend that some investors say is inevitable: that marijuana will become legal nationwide within the next 5 years.
As a result, companies, portfolio managers, and high-ranking executives are racing to position themselves to profit from what is expected to become a multi-billion dollar market.
Executives at companies including Amazon.com (NASDAQ:AMZN), Molson Coors Brewing (NYSE:TAP) and Nike Inc (NYSE:NKE) have jumped to roles at Canadian cannabis companies such as Tilray Inc (NYSE:TLRY) and Canopy Growth Corp NYSE:CGC) over the last 18 months in order to gain experience in the industry.
At the same time companies ranging from Coca-Cola Co (NYSE:KO) to Corona beer-maker Constellation Brands (NYSE:STZ) have taken the first steps into building cannabis-infused products.
“We fully expect a successful regulated market to eventually develop around cannabis, and when it does, we expect it will disproportionately benefit the strongest innovators with well-branded products & robust supply chains,” said an analyst at Wells Fargo who is bullish on the shares of Constellation Brands.
Investors say that they are watching Canada, where the legal recreational use of marijuana went into effect in October, as a testing ground for retailers and companies before US legalization.
The Canadian legalization has been a major catalyst for growth for a lot of companies in this space, and big consumer companies in the US are paying attention.
We are seeing consumer product companies test the waters and try to figure out how cannabis will factor into existing products or into new lines of products ranging from personal wellness products like CBD-infused lotion to consumable products like cannabis-infused beer and more.
Recreational marijuana sales in Canada are expected to generate $4.3-B in revenue in Y 2019, or slightly more than 60% of the country’s total $7.1-B marijuana market, which includes medical and illegal sales, consulting firm Deloitte noted.
In the US cannabis remains illegal under federal law.
The Wine and Spirits Wholesalers of America, a trade group that represents more than 80% of all wines and spirits sold in the US, voiced support for legal cannabis in July.
American executives who have joined the Canadian cannabis industry say that they were motivated in part by the expectation that marijuana will become federally legal in the US within the next 5 years, a decision that helped them balance out the danger of reputational risk associated with a substance that has long been associated with the ‘black market’.
“I had a negative perception of the industry initially and my first inclination was that cannabis companies were penny stocks and not that credible,” said Mark Castaneda, the CFO at Tilray.
“I started to see that this was a lifetime chance because this is a massive shift where you know there are consumers who use this product and now that it was legal the market could be even larger,” he said, adding that he expects that Canadian cannabis companies such as his own will eventually expand into the US once marijuana becomes legal.
The potential growth of the cannabis industry in the US is evident in the work histories of new hires by Canadian cannabis companies that have their sights set on expansion.
When we go to roadshows to some cannabis companies we serious businessmen and women running the companies.