The global legal cannabis market is exciting, large, and growing all the time
Stories abound in the industry and mainstream press regarding the total market cap both now and in the immediate future. Americans already spend more on cannabis yearly than they do on ice cream. Their neighbors to the north, the Canadians, are looking at a combined market some anticipate may be larger than the entire domestic alcohol industry by 2020.
Overseas, Israeli, German, and Australian markets are also now getting underway or significantly expanding as countries south of the Rio Grande fight back against the drug war.
But where should the savvy investor look to take advantage of these trends?
The reality is that not all markets are created equal, and that starts with regulation and the current state of reform. As a word of thumb, your best and safest bet is to look for medical investments. If they can be multi-purposed if and when recreational comes, great. If not, they should stand on their own in the medical space first. That means, in this case, a clear chain of title, professional investment documents, and shareholder agreements.
What Should The Novice Investor Do?
If your heart is set on the cannabis market, understand that no matter where you invest right now, this is still a market that is high risk. It is still a touchy topic internationally, although global regulations are now in the process of being challenged, as the UN allows domestic sovereign markets to proceed. It can also be difficult in single markets – like Europe – with multiple federal regulatory schemes in place. In places like the U.S., no matter how tempting the success of Nevada’s rec and medical tourist scene or California’s sheer size, there is the matter of Jeff Sessions armed with RICO.
That said, certain markets are less risky than others. And in some cases right now, a savvy investment in an ostensibly “English speaking” market might actually reap significant rewards elsewhere if done the right way.
People coming to this vertical as potential investors should do a lot of research on their target markets – the pros and cons, before narrowing it down to a specific region. Start with places where cannabis is federally legal. For the most part, even in Canada, this also means an investment in medical rather than recreational, although clearly every Canadian LP will shortly be in a position to serve both markets at least domestically by next year.
Play It Safe
Remember that if your investment goes wrong you have to deal with it in court. In Germany, for example, legal mumbo jumbo is a maze of compound words which can get confusing. If you are a native English speaker with little cultural background abroad, your first obvious investment country might be Israel, Australia, or Canada before Germany directly. Or even places like Jamaica, although local corruption carries its own high risks particularly for naïve foreign investors. Navigating Spanish in Uruguay, is another consideration, before of course, the other local legal challenges to commercial matters.
That said, right now in particular, there are some canny investments to be had, with the potential to create a generous return. Further, they are companies where the operating language might be English, but they crack markets like Germany or Croatia where the language issues can be a barrier. Or Australia, where the language might be the same, but the distance is a bit daunting. Even better, these are, for the most part, publicly traded companies.
Grow and distribution companies who are legally licensed in Canada right now are a particularly interesting play to an investor who is willing to risk some volatility (in both directions) in global pricing over the next five years. Of these licensed producers, also look at those who are establishing themselves in international, federally sanctioned medical markets right now. No matter where else these companies expand (except the U.S.), they are looking at domestic market expansion for the next few years on both the medical and of course new recreational front. Many of these firms already supplying the entire German and several other sovereign medical markets as grow facilities are established domestically.
That means for the next two years, at least, all of these entities, no matter how fast they are expanding, have a guaranteed capacity market both domestically and internationally. Furthermore, all of these firms have significant and impressive resources to begin to answer the many challenges of medical integration. This includes super impressive advisory boards and industry experts from across multiple industries on every management team. An investment in these firms, in other words, is a unique international play right now, that immediately brings other medical markets like Germany and Australia with it. Hard to beat that play anywhere.
Specifically, these include firms like Canopy Growth Corp (OTC:TWMJF), the so-called “Canadian Pot Unicorn”, Aurora Cannabis (OTC:ACBFF) and Aphria Inc. (OTC:APHQF). Also look at THC BioMed International (OTC:THCBF).
Look for strong brands in the global cannabis market that do not necessarily touch the product or innovative start-ups that solve issues within the industry. This could be technology. It could also be medical devices. It could be grow or test-tech. One of the so-far hidden gems of the German cannabis industry is actually a household name – by product name at least. Storz and Bickel, manufacturer of the by now legendary Volcano, is also the only licensed medical vape producer and distributor in Germany. Many companies like S&B, including tech companies, are still privately held, so an investment in such companies is also not a straightforward proposition.
Also, take a gander through promising young Israeli start-ups. This is of course a higher risk than publicly traded companies. However the Startup Nation is not a newbie to either entrepreneurial action or cannabis at this point. And there are already intriguing entrants here – many with a still mostly medical focus.
One of the more interesting Israeli-based firms that broaches all of these spaces and has enough standing to protect itself in the U.S., is a firm called OWC Pharmaceutical Research Corp. (OTC: OWCP). The country is positioning itself in interesting waters in both the U.S and Germany.
Be Wary of Non-Federally Legal Markets
There is, right now, a lot of buzz about a bunch of non-federal markets. Of course Nevada and California and others. However, remember this is in the U.S. where federal reform has not come yet. And the U.S. is not the only place investors should be very wary right now.
In Spain, for example, the independent state of Catalonia has just codified the law to make the cannabis club scene more legit. While it could be overturned at the federal level, it probably won’t. On the plus side, investing in a cannabis club there that follows the new rules probably won’t get you raided. And even if you are, the complications are considerably less than in the U.S. No matter what language you speak.
Bottom line? The best if not easiest to understand investments right now are all publicly traded, federally licensed companies, and for the most part, Canadian companies with footprints as well as strategic partners in other strong and developing medical countries.