This Week in Cannabis Investing August 16th

The summer doldrums are clearly still in effect for the cannabis sector. Weak bottom lines for some industry leaders in their latest earnings hasn’t improved sentiment. At the same time, cannabis investors are doing more than looking at the ground immediately in front of their feet. The Seed Investor drew attention to some very positive news in the sector that will have a significant going forward.

Monday, The Seed Investor took a look at the Big Picture in the United States: soaring cannabis demand. As could be expected, demand has spiked sharply in cannabis-legal states, rising by 47% since 2002. What is somewhat more surprising is that in states that have not legalized cannabis, demand has risen by 33%.

Cannabis is safe. As Americans shrug off nearly 100 years of anti-cannabis propaganda, they are rapidly increasing their cannabis consumption regardless of its legal status. States that have not legalized cannabis have a very clear choice:
 

1. Spend increasing law enforcement dollars policing absurd and antiquated anti-cannabis laws
2. Legalize cannabis and collect tax revenues.

Tuesday, rising Canadian cannabis retailer Choom Holdings (CAN:CHOO / US:CHOOF) announced the acquisition of a cannabis store in Whitehorse, Yukon. This builds upon its acquisition of four more cannabis retail stores in Alberta, along with opening another of its own stores in that province, reported in last week’s edition of TWICI.

Then we stepped back for a broad look at the cannabis industry:
 

Cannabis as medicine. Cannabis as a (safe) recreational drug. Cannabis nutraceuticals. Cannabis cosmeceuticals. Cannabis pet products. And then there is hemp: CBD, food additives, textiles, paper products, and a thousand other uses. A fully functional airplane has been built and powered entirely from hemp. More markets for cannabis are discovered daily as it revolutionizes the 21st century economy.

We weren’t finished. The Seed Investor looked at the growing connection between cannabis and professional sports. Obviously, cannabis has an enormous therapeutic role to play in dealing with post-career chronic pain problems – especially in connection with pain. But as we discover that cannabis also (naturally) boosts athlete’s training and performance, there is clearly a future role for cannabis during the careers of athletes.

Wednesday, we reported huge numbers out from Colorado with respect to legal cannabis revenues. New sales records in three of the last four months. Now nearly a $2 billion per year industry. Other states can duplicate this success. All it takes is reasonable taxation and regulation for the legal industry.

After hours, we drew attention to some weak net revenue and bottom-line numbers for industry leader, Canopy Growth (US:CGC / CAN:WEED). We explained why investors should see the ripple effect from these earnings as an opportunity.

Thursday, The Seed Investor played the role of industry advocate. We explained why it is essential that cannabis taxes be set at a reasonable low rate: it is (literally) the only way the legal market can squeeze out the black market. We pointed out that this is not a theory. This is exactly what Colorado has done to win its war against the black market.

We then focused on medicinal-only cannabis markets in the U.S. The Seed Investor pointed out how Oklahoma has seen growth in the medicinal use of cannabis that dwarfs other states. We explained why.

Friday, The Seed Investor produced its own original numbers on the potential of the U.S.’s legal cannabis industry. We pointed out how (potentially) cannabis could already be a $108 billion per year industry in the United States, if it had already been legalized nationally – and regulated efficiently.

Nothing theoretical here. All it would take is for other U.S. states to duplicate Colorado’s recipe for success. As Congress moves toward national legalization. This is the medium-term number that cannabis investors should be eying for this market.

Then we pointed out what is stopping the U.S.’s legal industry from living up to its potential. Regulatory failure for the legal cannabis industry in California – the nation’s single-largest cannabis market.

Cannabis investors can’t control the sagging valuations that continue in marijuana stocks. However, as industry fundamentals continue to improve in Canada and the United States, investors can take advantage of these current, rock-bottom valuations.

DISCLOSURE: Choom Holdings is a client of The Seed Investor.