Marijuana industry in the US is still in its inception phase, but it’s growing, and the projections are very optimistic. This year, retail sales of medical and recreational weed in the US are expected to reach $6.5 billion and by 2021 the sales are forecasted to surge to $30 billion, as more states legalize medical and recreational use of cannabis. So far, there are 28 states and the District of Columbia where medicinal marijuana is legal, but just eight states that allow the sale and possession of cannabis for medical and recreational use. This leaves the US cannabis market with a huge potential to grow in the near future.
In this way, companies across the country tap into the new market, building growing facilities, opening dispensaries and developing cannabis-based products. In turn, this opens new opportunities for investors, who can reap the benefits of putting their money in an industry, whose growth is outpacing the dot com boom in the 90s. However, when looking closer, the choices for regular investors are pretty limited. There aren’t any pure-play US cannabis stocks, with the exception of some over-the-counter stocks, which are less strictly regulated and, therefore, expose investors to a lot of risks.
Other than that, there are only a few stocks that are pitched as offering exposure to the marijuana industry. One of them is AbbVie Inc. (NYSE:ABBV), which has an FDA approved cannabis-based drug, Marinol, which helps with nausea for chemotherapy patients. However, Marinol’s patent has expired years ago and AbbVie Inc. (NYSE:ABBV) is a huge pharmaceutical company, so Marinol sales represent a tiny fraction of its sales. Another company is Insys Therapeutics Inc (NASDAQ:INSY), which sells a variety of drugs and earlier this year it has released Syndros, a liquid formulation of cannabinoid dronabinol, also for nausea and vomiting in AIDS and cancer patients. Then there is GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), which is as close as an investor can get to a pure-play marijuana stock. GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) is a UK-based biotech company that develops cannabis-based drugs and its only product currently on the market is Sativex, a spray medication that treats spasticity in multiple sclerosis patients. Sativex is sold in 16 countries and the approval is pending in several others, but neither does it sell in the US, nor is the US among the countries where GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) awaits approval.
To get some exposure to the marijuana industry, US investors can turn their attention north of the border. In Canada medical marijuana has been legal for years and the country plans to make recreational use legal in July 2018. There are several well-established Canada-based marijuana companies, like Canopy Growth Corp, Aurora Cannabis, and MedReleaf. Moreover, earlier this year, Canada has got its first marijuana ETF, Medical Marijuana Life Sciences Index ETF.
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Some of the Canadian marijuana companies are already preparing for expansion in the recreational market. For example, earlier this year, Canopy Growth, which is the largest licensed producer of medical marijuana, has announced plans to upgrade its production facility in order to triple production by July. As a side note, Constellation Brands, Inc. (NYSE:STZ), one of the top beer companies in the US, has taken a $2.0 billion stake in Canopy Growth and plans to develop cannabis-infused drinks, so it can also pass as a marijuana stock.
One of the reasons why there aren’t many pure-play marijuana stocks in the US is that while the industry on the whole looks promising, cannabis companies might find it difficult to capture the attention of investors. Larry Schnurmacher, managing partner of Phyto Partners, one of the leading venture capital firms that invest in the marijuana industry, has explained in a recent interview, why his firm stays away from cannabis-growing companies and its main concern for that is not related to the legal status of cannabis in the US. The problem with companies that grow marijuana is that they are engaged in a highly-regulated industry and they can potentially face federal prosecution. However, a bigger problem for cannabis growers is that their business is very capital-intensive and they face a lot of supply-demand pricing pressure. In this way, Phyto Partners considers that the business metrics of these companies don’t make them attractive investments.
Nevertheless, Phyto Partners found a way to take advantage of the US marijuana market, without getting exposed to the risks associated with investing in companies that grow or sell weed. Phyto invests in companies that provide products, services and solutions to companies that are directly engaged in the marijuana market. Most of the companies in which the VC firm invests operate in all 50 US states, as well as, internationally.
