Canadian Cannabis Investors Hope To Win Big With Legal Marijuana
Most everyone knows about the legalization of recreational cannabis in Canada—especially investors. In fact, investors paid close attention; the New York Times calls it “a financial boom not seen since the dot-com mania of the late 1990s.” And it overtook Canada in a big way. Legal cannabis will take effect in mid-October and is a rare and perhaps once-in-a-lifetime opportunity for investors to hop in on the ground floor of what will likely become a multibillion-dollar market.
Deloitte estimates the Canadian marijuana market to surpass CAD$22 billion in the coming years. Many of the same “boom” signs that happened during the dot-com era are happening in the Canadian cannabis market. However, the Canadian cannabis industry is more like the gold rush (or green rush) than the dot-com era in many ways. Marijuana growers haven’t recorded profits yet, but they’re investing millions; their stock market values are measured in billions. Everyone—from large billion dollar companies to small garage entrepreneurs—is trying to grab their slice of the pie.
Canadian Prime Minister Justin Trudeau indeed fired the starting gun of the “green rush” in June when Canada officially legalized. Many Canadians are hopeful that cannabis will add billions to their flailing economy, particularly boosting the economic decline that some small Canadian towns are experiencing. Certainly, governors in the provinces like Ontario and British Columbia are forecasting that cannabis sales will indeed go a long way in helping them to balance their budgets.
Just like in the dot-com era, there are skeptics who worry that the cannabis boom will produce more rags than riches. They worry about the hidden message in the way Trudeau introduced cannabis—as a way to eliminate the black market, rather than introducing it as a moneymaker or job creator. Skeptics say they worry that means cannabis may not be promoted in the way it needs to be to sustain the boom market.
Canada’s federal government regulates growers, but other specific rules regarding cannabis sales are left up to each province. Some like Quebec and Ontario have opted for government-owned stores, leaving some market experts less than enthusiastic because, in traditional government form, they’re likely to be overregulated.
In Canada, marijuana will be treated like cigarettes, with very restricted advertising regulations, meaning communicating a brand will be that much more difficult. For example, packaging cannot be attractive, and logos cannot stand out, but rather must be plain and uniform, except for the required blazing yellow health warning. Canada is also limiting marijuana merchandising—there will be no ball caps or t-shirts emblazoned with company logos.
Can companies stay in the market for the long haul? Skeptics say that many companies today have a great ability to raise money in this hysteria-infused market, but are sure that many of them will not have the same ability to make money. One example is Auxly, a grower that has invested millions in various growing operations around Canada. Shares once surpassing CAD$1 billion are now worth half that at just over CAD$500 million. Just this year, Auxly reported a C$10 million loss in the first quarter.
Auxly CEO Chuck Rifici, who is a former founder and CEO at Canopy Growth, says he is not at all worried, and that after October, this market offers nothing but promise.
Most companies take the same tack as Auxly; they’re not worried. After all, Canada has had a legal medical marijuana industry for nearly two decades—since 2001, and that market is booming, particularly in the CBD oil area. Big medical cannabis companies also look forward to mid-October and are expanding their operations to include the recreational business.
The medical cannabis industry has some pushback as well. The Canadian medical community is continually warning citizens about the health risks of cannabis, particularly in young people under age 25. Dr. Jeff Blackmer of the Canadian Medical Association says that when there is this much money to be made, “funny things happen”; he cites the lessons learned from big pharma. Blackmer says there is an astounding amount of misinformation circulating about cannabis.
Rifici says cannabis is a global business and he is waiting for the rest of the world to catch up with Canada and legalize recreational cannabis. When they do, Rifici wants to be ready: “The urgency for me is having the people and the capability to be a first mover in that new jurisdiction. I think one or two of the large multinational cannabis companies will be Canadian companies.”
While it is probably true, just like it was in the dot-com era, that rising stock values are not justified in every case of cannabis companies, many experts believe that those that figure it out and do it right stand to create substantial wealth.