How To Invest In The Marijuana Industry

The marijuana industry is taking off globally. Moving regulatory environments in U.S. states and now whole countries, if not continents, are not only moving the legalisation issue forward. They are also creating both business and investment opportunities.

It is being touted as the next “gold rush.” The industry is also being seen increasingly by policy-makers as a way to create jobs. That starts with production. However, it quickly moves into healthcare, particularly in Europe.

This also means, of course, that there are entrepreneurial endeavours that are legit. It also means that there is a real and developing investment market. The right investment in this market right now could still pay off in spades. However the idea of investing in a local mom and pop, just about anywhere, that will change the face of cannabis cultivation is a horse that’s long left the barn.

The flip side of course, is that with mainstreaming, cannabis becomes commoditized. This means that it increasingly becomes just like any other industry. That means there are many other opportunities opening up with the vertical that do not touch the plant directly. The R&D on the medical side alone is going to produce products that will be runaway hits.

That said, it does not mean that anything cannabis will be a success. There will be, as per the norm, more flops than overnight unicorns. And caveat emptor, if not extreme due diligence is required.

INVESTING IN SPECIFIC SECTORS

There are sectors of the developing industry which are more investor-friendly already. These are usually companies which are established but have introduced a new kind of canna-friendly branded product. Miracle-Gro is one of those companies. They have established reputations. They are also established public companies.

Many cannabis companies, particularly in the United States, rushed to go public over the last several years because of access to public market funding. This got them in trouble as they tried to morph into entities that the SEC would approve. Most of them did not survive growing pains.

Technology is another area, whether it intersects with growing or not, where there are beginning to be some interesting plays. That said, business models in different places will vary, sometimes dramatically. This has as much to do with existing regulation as anything else.

The equity markets are different in Europe as is the overall business. Regardless, however, the fact is that the entire industry is not ready for institutional investment. Why? Regulations in the United States and elsewhere. Even in the U.S. where state markets have developed over the last 20 years, the lack of federal reform means that almost all financing related to this industry has been and will be smaller start up focussed investment. Canada and Israel will continue to lead on overall investment opportunities in every part of the industry. That is because of Israel’s head start on medical and Canada’s looming rec market. Europe will also be a force to be reckoned with on the medical side. Beyond growing, there are also other opportunities for investment that are just on the horizon.

INVESTING IN STARTUPS

Essentially what investing in this industry means, almost everywhere, up until now meant investing in privately held, non-public companies. It has also meant a heavy focus on start-ups. This is the most risky part of the market, but also potentially the most rewarding. It is a place where innovation, research and discovery are continuing to find new uses for a drug that was illegal for the last 100 years. While there will be plenty of failures, even here, the time if not opportunity is ripe for innovation, entrepreneurship, investment and profit.

WHERE SHOULD I START?

Perhaps the best way to begin investing is to learn about the current environment. There are a couple of companies that everyone mentions. That does not mean they will continue to be a good deal or be worth the investment. Just because this is cannabis, does not mean that the laws of the market are otherwise suspended.

GW Pharma

Everyone loves to mention this odd British pharma. It was given a licence to grow medical marijuana before the turn of the century. Since then it has produced plant-based medicine for export in a country where medical use is still illegal. Essentially it has been given licence to bend a lot of rules as a pharma company. As a result, the stock has gone through the roof in the last couple of years (over 1,000%). Even this company has had some flops however. This includes acceptance of Sativex, the mouth spray with THC.

Medical Marijuana Inc

This company has the distinction of calling itself the first publicly traded pot stock in the U.S. They appear to be a group of strategically aligned and invested companies in the industry. They are clearly investing in some of the main pillars of this space. Investing in their stock is essentially investing in their understanding and knowledge of the market as well as how they are reaching the market.

MMJ PhytoTech and MGC Pharmaceuticals

These are two hybrid firms in Australia that have partnered with Canadian firms to spur growth. They might be joined shortly by business partnerships spurred by the developing German market. The first tender bid for grow licences was recently released by the German government. It requires German companies to have foreign partners. How that will end up in terms of form is unclear. However, it may also well create some interesting public companies operating in multiple jurisdictions.