Canada legalized retail sales of cannabis on October 17 – financial markets are excited by the possibilities of this new market with ten cannabis firms already listed on US markets, one more applying, plus two cannabis ETFs. However, the industry isn’t lucrative yet.
Bloomberg tracks 100 cannabis related firms and while some of them make money, as a whole the group lost $1.2 billion last year (profits are always slim during the early days of an industry). That same group has a market value of $76 billion but revenues of just $2.5 billion.
In September the SEC issued a warning about “investment fraud and market manipulation” around cannabis firms, a rare move from the market regulator.
Now that the bad vibes are out of the way, here’s the good
The extremely high valuation of cannabis firms is the result of anticipation of intense rapid growth. This growth could be brought on by legalization in the United States. 31 states already have made cannabis legal for medical use and another eight have made it legal for recreational use.
Congress is full of bills to legalize cannabis and if Democrats do well in the mid-term elections the outlook of one of those bills passing is positive.
Big brands such as Altria, Coca-Cola, Constellation, and Diageo all see value in the cannabis market too.
- Altria is “exploring options, and we’re mindful of the possibility that in the future cannabis may no longer be illegal under federal law.” a position that’s changed from “Marijuana remains illegal under federal law and Altria’s companies have no plans to sell marijuana-based products.”
- Constellation, the brewer of Corona beer, has a 35% stack in Canopy Growth.
- Coca-Cola is in talks with Aurora Cannabis to develop a beverage
Diageo is in talks with three cannabis firms to develop a beverage
Disclaimer: Consult your financial professional before making any investment decision.