How to Invest in Canada’s Cannabis Industry
November 27th, 2017
The United States might be dragging its feet on federal cannabis legalization, but Canada is going full steam ahead. That means that not only do cannabis enthusiasts have a lot to be excited about on the Canadian front but so, too, do investors looking to get into the Canadian cannabis market.
As of now, there are 33 Canadian cannabis companies that hold 41 licenses from Health Canada that permit them to cultivate and/or sell cannabis. And of those companies, 11 of them are being traded publicly with many more expected to follow.
That being said, if you’re someone looking to invest in the Canadian cannabis market, there are a few important things you should be aware of before you get started.
Among the most important aspects of the cannabis investment market include (1) the exchanges that are currently available, (2) the different types of cannabis companies that can actually be invested in, (3) whether there are any dual-listed stocks, and (3) any external market considerations, like the potential legalization of recreational marijuana in the near future.
Read on to learn more about those factors so that you can be well on your way to making informed and intelligent cannabis investment decisions.
What Canadian Cannabis Exchanges are Available?
In a nutshell, if you’re looking to invest in the Canadian cannabis market, you’ll be investing in either the CSE or the TSX-V.
Canadian Securities Exchange (CSE)
The CSE is a Canadian stock exchange that lists some of the most popular publicly-traded cannabis companies. Generally speaking, when companies choose the CSE they’re signing on to lower listing costs and a flat, all-inclusive fee as well as a flat monthly fee to keep the listing up. A lot of cannabis companies might favor this exchange for its fewer regulatory restrictions and easy maintenance.
Toronto Stock Exchange (TSX) and Toronto Stock Exchange Venture (TSX-V)
The TSX is one of the biggest stock exchanges in the world and is considered the senior equity market in Canada. The TSX-V is the Canadian marketplace for public venture capital from new and emerging companies. The listing requirements for TSX make it more viable for well-established corporations while the TSX-V has softer requirements that allow junior companies—like most cannabis businesses—to access public capital markets.
Opportunities From Dual-Listed Stocks
If you’re like many investors, then you might be looking to invest in Canadian cannabis despite not being a Canadian resident, which begs the question: Are there dual-listed cannabis stocks that United States-based investors can capitalize on? The short answer is: Yes, absolutely.
Fortunately for savvy investors everywhere, many Canadian cannabis companies are dual-listed on over the counter (OTC) exchanges in the United States and the aforementioned Canadian exchanges where there’s considered to be better liquidity. For example, Canopy Growth Corp., a Canadian cannabis company showing massive growth, trades around 21,000 shares per day on the U.S. OTC exchange as well as approximately 550,000 shares per day on the TSX-V exchange.
In summary, it’s safe to say that most foreign cannabis companies that can’t be accessed using direct market access are made available thanks to the majority of international marijuana stocks being dual-listed on the above mentioned OTC exchange. And given the boom of investor interest in the market, this trend is likely to continue.
What Are the Different Types of Cannabis Companies Available for Investment?
So far, cannabis testing labs are a billion dollar market, so it’s safe to assume that these companies are viable investment opportunities. Basically, a cannabis testing lab is a company that devotes its resources to testing the potency and purity of cannabis strains, as well as more granular information about the drug, such as the terpene counts and cannabinoid breakdown.
Licensed producers are cannabis companies that have been authorized by the Canadian government under the Access to Cannabis for Medical Purposes Regulations (ACMPR) to produce and sell marijuana in the form of dried flower, fresh cannabis, cannabis oil, or starting materials to grow for folks who are eligible.
With technology continuing to boom at an exponential rate, it makes perfect sense that cannabis technology companies are popping up far and wide. Cannabis tech businesses can involve anything from marijuana marketing automation software to cannabis data analysis to apps designed to help growers, retailers, and dispensaries better manage their business.
Cannabis companies involved in therapeutic development are businesses dedicated to determining and developing cannabis-specific therapies for patients with various ailments. They tend to be research-dominant, hunting for more effective and clinically-tested ways to approach therapeutic cannabis treatment.
More and more cannabis companies geared toward CBD- and cannabis-infused foods are beginning to arise in the Canadian market. And these companies are just like they sound: businesses that are developing cannabis edibles that can be used for medical treatment and (hopefully) recreational purposes in the future.
External Canadian Cannabis Market Factors to Consider
Given that cannabis is relatively new to the Canadian market, it’s too soon to tell what the longstanding regulations for cannabis companies will be. There have already been a number of changes to government regulations of the drug and changes are likely to keep happening as the industry evolves and the Parliament becomes more acutely aware of what, exactly, its impact looks like. Investors should keep in mind that some regulations might significantly impact the success of businesses.
Marketing and advertising are critical to any company’s success, so the fact that Canadian cannabis companies have a number of restrictions on the ways in which they’re able to advertise should at least give investors pause. The current prohibitions in place from Health Canada considerably limit what can and cannot be said on promotional cannabis materials, at whom advertisements can be targeted, and even what the ads themselves look like.
Perhaps the biggest external factor to consider is whether or not recreational marijuana will become legal in the country. The fact that the Prime Minister, Justin Trudeau, introduced the recreational legislation himself bodes well for its future. However, there are no certainties, so investors should still be cautious about how much they bank on the future of recreational legalization being a reality.
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