In this article we are going to present an alternative to weed stocks such as GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), Cara Therapeutics Inc (NASDAQ:CARA), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), and Insys Therapeutics Inc (NASDAQ:INSY).
When it comes to investing in the marijuana industry many people think about stocks of companies that are either growing and/or selling marijuana for recreational use or pharmaceutical companies that are developing drugs. The logic makes sense since the marijuana industry is still in its inception, so these companies have a lot of potential. Think back to 1934 when the prohibition ended. People that purchased shares of Anheuser Busch Inbev NV (ADR) (NYSE:BUD) back then collected very handsome returns over the next couple of decades as the company grew to become the largest beer maker in the world, or at least their children and grandchildren got to enjoy those returns.
Now, as multiple US states have legalized the medical use of marijuana and several have adopted legislation allowing recreational use and Canada also being on its way to legalize recreational marijuana, a huge market that has been kept under wraps will make its way to the public. According to GreenWave Advisors LLC, the US marijuana market could be worth $25 billion by 2020 billion and CIBC estimates the Canadian recreational marijuana could be valued between $5 billion and $10 billion. A lot of companies, big and small, have emerged on the back of cannabis legalization and they captured the attention of investors, which sent their stocks higher even though most of cannabis companies don’t have any profits. Take for example GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), which is as close to a pure-play marijuana company as it can get. GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH)’s stock has surged from $8.50 in 2013 to over $131 per share even though the company hasn’t generated any profits in this period. Another example is Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), which is a clinical-stage pharmaceutical with a single product in its pipeline – anabasum, a synthetic oral endocannabinoid-mimetic drug for chronic inflammation. A bunch of smaller companies that are developing cannabis-based drugs include Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) and Cara Therapeutics Inc (NASDAQ:CARA). Then there are some companies whose stocks are trading over-the-counter, such as Nemus Bioscience Inc (OTCMKTS:NMUS) and Axim Biotechnologies Inc (OTCMKTS:AXIM).
Copyright: atomazul / 123RF Stock Photo
However, investing in GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP) and other similar companies can be risky due to their lack of profits and the fact that they are young. Therefore, a better idea is to invest in big pharmaceutical companies with exposure to marijuana industry. For example, Abbvie Inc. (NYSE:ABBV) has an FDA-approved cannabis drug, Marinol, which helps with nausea for chemotherapy patients. Another company is Insys Therapeutics Inc (NASDAQ:INSY), which has released Syndros, a liquid formulation of cannabinoid dronabinol for nausea and vomiting in AIDS and cancer patients.
Despite the potential size of the marijuana market in the US and Canada, investors’ choices among pharmaceutical companies are still pretty limited and investing in them carries a lot of risk, as their products have still to prove themselves in a market that is still in its inception. Due to strict regulations, many marijuana companies are choosing not to list themselves and even though the marijuana market is booming there is still many gray areas that have to be sorted out and legislation has to be clarified for companies to get access to financial markets and access financial services. Therefore many cannabis companies raise money from private investors and VC funds like Phyto Partners.
What funds that invest in the marijuana industry have in common is that the bulk of their investments stays away from pharmaceuticals or companies that are directly involved in selling weed. They invest in technology and real estate that benefit from the growth of marijuana industry. Their approach makes sense since cultivation of marijuana is a capital intensive business and the success of pharmaceutical companies relies on the profitability and relevance of their drugs. However, companies that service the marijuana industry are poised to win no matter which grower or pharmaceutical company succeeds.
For example, among Phyto Partners’ investments are New Frontier, a research and analysis company that provides real-time data on the cannabis industry, Steep Hill Labs, a biotech and R&D facility, and Leaf, a startup that is developing a pod that allow growing not just cannabis, but a whole range of herbs and food. Other companies in Phyto Partners’ portfolio include Wurk, which has developed a platform that allows businesses to manage payroll, HR, timekeeping, scheduling and tax compliance, Flowhub, a provider of compliance software for the cannabis industry, and Front Range Biosciences, an agriculture biotech company that is providing genomics and cloning services to cultivators.
The problem with investing in companies servicing the marijuana industry is that many of them are private, so buying their stock can be tricky for individual investors. However, there are several publicly-traded companies that have exposure to the marijuana industry. One of these companies is Scotts Miracle-Gro Co (NYSE:SMG), which is mostly known as one of the leading lawn care companies in the US, which sells fertilizers and pesticides. It owns around half of the lawn care market in the US and is the exclusive marketing agent for Monsanto Company (NYSE:MON)’s consumer Roundup weedkiller products in the US and several other countries. However, Scotts Miracle-Gro Co (NYSE:SMG) also invested in hydroponics in order to serve the marijuana market. Hydroponics systems are very important for growing marijuana and the company plans to continue strengthening its position in the industry.
Real estate is another opportunity to get exposure to the marijuana industry as companies lease space for dispensaries and growing facilities. There are several real estate investment trusts that own properties that are leased to marijuana-focused companies. One REIT that is public is Innovative Industrial Properties Inc (NYSE:IIPR), which is small and has a market cap of just $105 million. Innovative Industrial Properties Inc (NYSE:IIPR) is focused solely on acquisition and management of industrial properties leased to companies that require medical-use cannabis facilities and it has a dividend yield of 3.30%.
To sum up, healthcare stocks are not the only opportunity to gain exposure to the marijuana industry and even though there aren’t many publicly-traded non-healthcare companies, their numbers should grow as the market expands and the industry regulation becomes more clear, paving way for more companies to get listed. In the meantime, Phyto Partners and other VC funds are investing heavily in marijuana startups, aiming for high returns once these companies hit the market.
