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The Cross Pollination of Cannabis Investments in North America

Ryan Allway

May 25th, 2018

Exclusive, News, Top Story

The cannabis industry is one of the fastest growing industries in North America. The legalization of medical and adult-use cannabis helped the industry grow more than 30 percent in 2016 to nearly $10 billion last year, according to ArcView Group, and there are no signs of a slow down. By 2021, the Oakland, CA-based research firm believes that the market could exceed $24.5 billion, representing a blistering 28 percent compound annual growth rate.

In this article, we will look at how cannabis companies and cannabis-focused investors have navigated opportunities in both the United States and Canada.

Canada’s Favorable Regulations

Canada legalized medical cannabis under the Marijuana for Medical Purposes Regulations, or MMPR, back in 2013, making it the first G20 country to federally legalize the drug. With the election of Justin Trudeau as Prime Minister in 2015, voters green-lighted the legalization of adult-use cannabis on a federal level as well under what’s now known as a the Access to Cannabis for Medical Purposes Regulations, or ACMPR.

By comparison, the election of Donald Trump in November of 2016 brought a lot of uncertainty to the cannabis industry, especially with the appointment of Jeff Sessions as attorney general. Lawmakers in the House and Senate have made a lot of progress in moving towards a federal framework – at least for medical cannabis – but the country has a long way to go before its regulations reach the maturity of Canada.

While many North American industries are concentrated in the United States, Canada’s progressive policies have helped create the largest companies in the cannabis industry. Canopy Growth Corp. (TSX: WEED), Aurora Cannabis Inc. (TSX: ACB), and several other licensed producers have amassed multi-billion dollar market capitalizations by cultivating cannabis for the domestic market and for export all around the world.

The regulatory environment is so favorable that many U.S. companies have opted to go public in Canada to avoid federal intervention in the United States. For example, California-based MedMen Enterprises, which operates dispensaries and production facilities in three states with more than 800 employees, is scheduled to go public on the Canadian Securities Exchange through a reverse takeover with a listed shell company rather than an initial public offering.

Growing Appetite for U.S. Exposure

The corollary is that there is strong global investor appetite for U.S. cannabis companies – and especially those with exposure to California’s massive market. In November 2016, California voters legalized adult-use cannabis in a move that created the world’s largest single market. ArcView Market Research believes that the market will grow from $2.8 billion in 2016 to $6.5 billion by 2020, representing a strong 23.1 percent compound annual growth rate.

“The Canadian public market offers access to a lot of capital, with a lot of certainty and a lot of speed, and there is this appetite among global investors to invest in a U.S. play,” said MedMen CEO and Co-Founder Adam Bierman at the Canaccord Genuity conference in Vancouver this year. “Specifically, global investors want to invest in a U.S. play that has California exposure. Now is the time where it makes the most sense.”

Many Canadian licensed producers trade at lofty valuations by conventional earnings metrics, while there is growing uncertainty about the true size of the domestic market. With over 100 licensed producers (and counting) approved by Health Canada, the growing supply could lower prices and create thinner profit margins than investors were initially expecting to see. Those dynamics have led many Canadian investors to look at ancillary opportunities.

Looking Ahead

Investors may want to take a closer look at U.S. companies focused in California as an opportunity to diversify licensed producer holdings in Canada. MedMen Enterprises is a great example, particularly given its size and growth, as it is scheduled to go public next week through a reverse merger.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

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CFN Enterprises Inc. (OTCQB: CNFN) owns and operates CFN Media Group, the premier agency and financial media network reaching executives, entrepreneurs and consumers worldwide. Through its proprietary content creation, video library, and distribution via www.CannabisFN.com, CFN has built an extensive database of cannabis interest, assisting many of the world’s largest cannabis firms and CBD brands to build awareness and thrive. For more information, please visit www.cfnenterprisesinc.com.

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