As the cannabis market grows globally, there are different ways to invest in the sector: directly in shares such as Veritas Farms Inc. (OTC: VFRMD), through investment companies, or ETFs Cannabis cultivation has been illegal for decades. The black market was the main beneficiary. Scientific research has shown that cannabis has medicinal properties that are effective in treating many diseases. Medical cannabis is of interest to many companies, mainly in the United States and Canada. The development of the industry was also supported by new regulations. Today’s legal cannabis market is worth billions of dollars and companies in this industry are listed on stock exchanges.
How much is the cannabis market worth?
According to New Frontier Data, the world cannabis consumer market is worth around USD 343 billion and around 263 million people worldwide can be considered active cannabis consumers. The analytical company has included all those who use cannabis at least once a year. According to the report, the value of this market in individual regions of the world is as follows:
- Asia – $132 billion,
- North America – $85.6 billion,
- Europe – $68.5 billion,
- Africa – $37.3 billion,
- South America – $9.8 billion.
The founder and CEO of New Frontier Data, Giadha Aguirre de Cancer, stated in his statement: “More than 50 countries in the world have legalised some form of cannabis and 6 of them have legalised cannabis for recreational use by adults”.
According to the estimates by the research companies Arcview Market Research and BDS Analytics, in 2017, the value of the entire legal cannabis market was $9.5 billion, in 2018 it rose to $12.9 billion, and in 2019 it is estimated at $18.1 billion. The largest share in this market is held by the United States. The second country with the largest share in the cannabis market is Canada. In 2019, the value of the legal cannabis market in the USA is 14.4 billion USD, in Canada 2.7 billion USD, and the share of the rest of the world is 1 billion USD. Arcview Market Research and BDS Analytics predict that the market for legal cannabis in the world will grow to USD 32 billion in 2022.
How to invest?
There are various investment opportunities to gain exposure to the cannabis market. You can invest directly in shares of companies like Veritas Farms Inc. (OTC: VFRMD), an increasingly successful producer and distributor of CBD products. Their 140-acre industrial hemp farm and manufacturing facility is based in Pueblo, Colorado where the company’s eight product categories with over 60 SKUs come from.
Veritas Farms is focused on transparency and delivering high quality products. They recently released a QR code packaging with which customers can check the products’ quality on their smartphones. In only four year of operations, since 2015, the company experienced impressive growth. In Q2 2019 Veritas generated more than $2.9 million in total revenue and that is a 500% increase since Q2 2018. Their gross profits reached $1,523,413 and thanks to great results, they managed to reduce the liabilities by over $1.3 million.
Another way of gaining exposure to the entire cannabis industry is through ETFs and CFDs. It is worth mentioning Horizons US Marijuana Index ETF (HMUS) introduced by the Canadian company Horizons ETF Management Inc. in April 2019. To some extent HMUS reflects the behaviour of the US Marijuana Companies Index, which provides exposure to a basket of publicly listed US cannabis companies that are active in or have significant exposure to the cannabis industry. Other ETFs that also rely on this industry are Horizons Marijuana Life Sciences Index (HMMJ) and Horizons Emerging Marijuana Growers Index ETF (HMJR). Horizons Marijuana Life Sciences ETF includes 14 companies associated with the medical marijuana industry. It is based on the North American Medical Marijuana Index, developed by the German company Solactive.
It is also worth mentioning the BITA Global Cannabis Giants Index, calculated by BITA – a German company dealing with financial technologies. This index is a profit index, taking into account reinvestment of dividends. It consists of 20 largest listed companies related to the cannabis industry. The weights of individual companies in the index are determined on the basis of market capitalization, and therefore the largest companies have the greatest impact on the behavior of the index. With different company sizes, in order to limit excessive concentration of individual companies, the index provider limits the weight of individual companies to a maximum of 15% at the time of quarterly revision of the index change. 16 out of 20 companies in the index are Canadian companies, 3 US companies and one UK company. Non-Canadian companies focus primarily on medical marijuana, in particular cannabis-based medicines. Innovative Industrial Properties, one of the American companies, is an investment fund focusing on cannabis-related real estate investments. The biggest weight in the BITA Global Cannabis Giants Index is held by the companies: Cronos Group, Aurora Cannabis, GW Pharmaceuticals, Canopy Growth, Tilray, Aphria.
You can invest in index-based derivatives or in selected companies. Investment in cannabis companies is similar to any other investment in listed companies. It is worth keeping in mind that quarterly reports, information about important events in the company, as well as data on cannabis sales by licensed sellers are published. Since some Canadian companies export cannabis to countries that have legalised medical cannabis but do not have their own crops, it may be important to follow regulatory developments in different countries.
It is also good to know about investment companies such as GreenStar Biosciences Corp. (CSE: GSTR) that built their entire business strategy around creating a strong and diverse portfolio of cannabis companies. With their one stock investors can access the most promising and best performing marijuana companies in North America.
GreenStar has already built a few successful partnerships. Their partner tenant company from Washington state, Cowlitz, regularly brings a quarterly revenue of $4 million and growing, and last year recorded a revenue of over $14 million. This growth was possible thanks to GreenStar’s support. Cowlitz is a producer and distributor of recreational cannabis products of high quality and at low prices. They became a leader cannabis company in the state.
GreenStar has recently created a joint venture, Capri, with Progressive Herbs Inc. which is the exclusive owner of a license for a new, ground-breaking cannabis cultivation technology. It allows to grow the plant much faster, cheaper and maintain high quality and high THC level at the same time.
Companies like GreenStar Biosciences are an attractive alternative to ETFs for investors interested in making a more balanced, safer investment in the cannabis sector.
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