Which marijuana markets should you consider in 2019?
While Canadian licensed producers were the big story of 2017 and 2018, American and Israeli cannabis businesses could make the headlines in 2019.
Marijuana became legal in Canada on October 17th, 2018. Since then, however, stock prices of all major Canadian licensed producers have had a rough ride. Canopy Growth Corporation, one of the leaders in the sector, peaked at CA$76.68 on October 16th, 2018, and then fell as low as CA$34.39 on December 24th, 2018, losing 55 % of its all-time high (ATH) value. Aurora Cannabis Inc., another major marijuana producer, registered a loss of 62 % after reaching its ATH. As usual, the hype surrounding the insane returns earned by early market participants has trapped unsophisticated investors.
Even though the Canadian marijuana industry could bounce back, “green bugs” will probably have to wait for a bit before the Canadian pot stocks enter bullish territory again. However, it does not mean that all opportunities have vanished from the weed industry. Instead of focusing on Canada, investors should consider other markets where fortunes have yet to be made, such as the United States and Israel.
The United States
The US marijuana market is 10 times bigger than its Canadian counterpart. Nonetheless, although many states have legalized the recreational use of marijuana, the substance is still considered a Schedule 1 drug by the DEA. According to their website, “Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse.” For this reason, big money has been reluctant to flow in the American cannabis sector.
The appointment of Jeff Sessions as the Attorney General of the United States (AG) by Donald Trump has caused some panic since Sessions is a well-known marijuana opponent. Many people feared that the AG would enforce federal laws in states where recreational marijuana is legal.
However, things changed in April 2018 when President Trump decided to support Senator Gardner of Colorado who was looking to make sure that the marijuana companies operating legally at the state level would not get prosecuted by the Department of Justice. Moreover, Trump fired Sessions in November as the AG maintained his decision to recuse himself from the Mueller investigation. His departure is good news for companies dealing with marijuana in the United States since their top enemy has left the federal administration.
More recently, the President of the United States signed the Farm Bill on December 20th, 2018, which will legalize the industrial use of hemp — a cannabis plant with small levels of THC — across the country. While this market is currently valued at $418 million, experts claim that it could reach $25 billion by 2025. Hence, publicly traded hemp producers, such as Hemp, Inc., could do very well during 2019.
As many states have legalized recreational marijuana, countless users will need tools to consume the substance. Pax Labs, a vaporizer company based in San Francisco, managed to raise $20 million from investors in October 2018, bringing the startup valuation to $5 billion. Their activities are not directly related to the cannabis substance itself, meaning that they can get listed on major stock exchanges in the United States.
Israel
Far away from North America, the Israeli market is also on track to attract investors looking to profit from the marijuana industry. Israel is a seasoned player in the cannabis industry since it is one of the most advanced countries regarding knowledge of medicinal and agricultural technologies.
On December 25th, 2018, Israel’s Parliament unanimously approved a bill that will allow businesses to export medical marijuana. Prime Minister Benjamin Netanyahu is expected to give the final approval. While lawmakers were concerned that a medical marijuana surplus would potentially end up fueling the black market, they decided to vote in favor of the bill when health and finance ministries explained that cannabis exports could generate $260 million per year.
Marijuana producers based in Israel will benefit from this upcoming change. For instance, InterCure Ltd, an Israeli holding company of cannabis firms, said earlier in December that they were planning to get listed on the Nasdaq by mid-2019. InterCure Ltd has one farm in Israel and is currently expanding to 10 European countries.
Conclusion
The long era of prohibition has come to an end. Canada and Uruguay have already legalized the substance, leading governments across the world to adapt to this new paradigm. Investors need to pay close attention to emerging policies since they may create new opportunities.
Sources: CNN, The Green Fund, MarketWatch, AP News, and Pot Network
