50 countries have now legalised the use of medical marijuana, and 20 have legalised its recreational use. Overall, the legal cannabis industry in the US generated $25 billion in sales in 2021, where the sector grew by 33% last year. And more than 400,000 people work directly in the field of ‘green gold’ in North America.
The cannabis industry is extending into many sectors including pharmaceuticals, tobacco and alcohol, while corporate mergers and acquisitions increase. It’s becoming an attractive sector for investors, especially those with an eye on the long-term. Want to know more? Let’s get into it!
Marijuana: cultivated for 12,000 years
Cannabis, which is the scientific name given to the marijuana plant, has been used for thousands of years in both medicinal and recreational form. There are written records of its use in medicine going back to 2737 BC in China. There are also Chinese references to the use of hemp (one of the strains of cannabis) from eight thousand years ago.
Indeed, humans have been cultivating this plant for at least 12,000 years, according to recent discoveries, making it one of the oldest “domesticated” plants. It grows in almost any climate and was used without restrictions throughout the world until a 1961 law – the “Single Convention on Narcotic Drugs” – limited its usage.
Marijuana is made up of a hundred substances, known as cannabinoids, with great therapeutic potential. However, more than half a century of stigmatisation means that scientists haven’t studied or exploited it as deeply as opioids like morphine which is used widely to treat pain.
Of course, within the cannabis plant there are different elements with varying levels of potency. THC is more psychoactive, while CBD is less psychoactive but contains therapeutic uses. Many pharmaceutical companies are researching new ways to relieve pain and spasms, reduce inflammation, control nausea and vomiting, or restore appetite. Millions of patients with cancer, epilepsy, sclerosis, arthritis, intestinal diseases or glaucoma, among other ailments, benefit from it daily.
Whether for recreational use or for medical use, the consumption of the flower of the female marijuana plants and its derivatives – such as hashish, which is the resin of that flower – is usually done by ingesting it orally, or either by smoking it or inhaling its vapours. The number of users will increase exponentially in the coming years if it continues to be legalised by more countries.
Does the marijuana industry have a future?
The CEO of Canopy Growth, one of the large cannabis producers, estimates that the size of the global cannabis market could be in the region of half a trillion dollars, twice as much as Alphabet’s revenue in 2021. Canopy Growth is 38% owned by Constellation Brands – the company behind Corona and Modelo beers.
In the United States, some twenty states have already legalised the recreational use of marijuana and it may even be legalised at the federal level very soon. This would accelerate the revenue and growth of cannabis producers and other companies in the space.
Still in many places it remains illegal. In fact, cannabis is the most widely used illegal substance in the world. According to Europol, Europeans spend €30 billion each year on illegal drugs, and 39% of that money goes to cannabis. In addition, a recent study shows that 70% of Americans between the ages of 18 and 24 prefer marijuana to alcohol. And according to Grand View Research, the global cannabis market will reach a volume of $70.6 billion dollars by 2028.
On the other hand, the legalisation of medical cannabis in many countries has led to significant research and investment by large pharmaceutical companies. Pfizer bought Arena Pharmaceuticals – a cannabinoid research firm – at the end of 2021. And in Spain, which legalised the use of medical marijuana last year, Canopy Growth has reached a collaboration agreement with Alcaliber S.A.
With all that in mind, how can you invest in cannabis companies through BUX Zero?
These companies produce or cultivate the marijuana plant and distribute it to other businesses. Canada is the world’s leading country in this regard, having legalised the use of recreational marijuana in 2018. Some cannabis producing companies include:
- Aurora Cannabis – Aurora is a Canadian marijuana production company founded in 2006. It operates in 25 countries through more than ten different brands. About half of those are dedicated to recreational use and half to medicinal usage. It debuted on the Toronto Stock Exchange in April 2017 and was listed on the New York Stock Exchange in October 2018. In the first quarter of 2022, the company reported revenues of CAD $50.43 million, about €37.26 million. It has some 1,600 employees, although it has just announced a restructuring that will involve the dismissal of 12% of its staff.
- Canopy Growth – Another Canadian company, Canopy Growth was the first cannabis unicorn after reaching a billion-dollar valuation in 2016. In the first quarter of 2022, it generated revenue of CAD $111.77 million, about €82.61 million. However, Fitch recently downgraded Canopy’s rating to ‘CCC’ due to “loss of market share.” In 2017 Constellation Brands, owner of Corona and Modelo beers, began investing in Canopy and currently owns 38.6% after paying more than $4 billion.
- Cronos Group – Cronos is the third-largest cannabis producer and distributor in Canada. Founded in 2012, the company has been listed on the New York and Toronto Stock exchanges since 2018. It distributes its products through six brands on five continents. In 2018 Altria Group, owner of Philip Morris (Marlboro), acquired 45% of the company for $1.8 billion. In the first quarter of 2022, Cronos had revenue of $25.3 million, about €24.23 million.
- Sundial Growers – The fourth Canadian company on our list. Sundial Growers specialises in production, distribution and sale of cannabis for medicinal and recreational use. It debuted on the US Stock Exchange in August 2019. The company posted revenues of $17.6 million, about €13 million, in the first quarter of 2022. Recently, the company’s CEO, Zach George, gave an interview where he spoke about the problems and opportunities that rising interest rates are bringing to the sector. He also predicted another wave of acquisitions and mergers.
- Tilray – Surprise, another Canadian company! Tilray had revenue in the last quarter of 2021 of $151.87 million, about €144 million. The company has set an ambitious goal for the end of 2024: revenues of $4 billion per year.
These are science and pharmaceutical companies that are actively developing new medicines and treatments using the marijuana plant. Two biotech companies working in the cannabis sector are:
- Amyris – This is a US company based in California best known for two skincare products, Biossance and Pipette, and the sugar substitute Purecane. It also offers CBG, a fermented substitute for CBD. The company generated revenues of $57.71 million, about €54.8 million, in the first quarter of 2022. Swedish investment firm Nordea Investment Management AB has just increased its investment in Amyris in June 2022.
- Pfizer – The US pharmaceutical company is one of the largest of its kind in the word, and the first to get authorization for the Covid-19 vaccine. It generated revenues of $81.3 billion in 2021, almost double that of 2020. One of the things it did with its profits was to buy Arena Pharmaceuticals – which specialises in cannabinoids research – at the end of 2021, for $6.7 billion. The main reason for the acquisition is medicine for ulcerative colitis and Crohn’s disease.
These companies provide everything necessary to grow and produce cannabis, such as soil and fertilisers or lighting and ventilation systems for large-scale cultivation. Some companies supplying the cannabis sector include:
- Grow Generation – Grow Generation is an American company that sells growing equipment and plant nutrients to cannabis companies of all sizes. It also sells cultivation equipment to individuals. In the first quarter of 2022, it generated revenues of $81.77 million, about €77.73 million.
- Hydrofarm Group – This US company was founded back in 1977. In addition to growing equipment, it also sells agricultural and livestock machinery, such as water pumps and heaters. The stock only began trading recently, in December 2020. Its revenues in the first quarter of 2022 were $111.38 million, about €105.8 million.
A sector with short-term volatility…
The share price of cannabis companies shot up between 2018 and 2020 as many investors anticipated US federal legalisation laws. However, the price has dropped considerably since then. Traders also had high expectations for mergers and acquisitions but many of these didn’t materialise. For that reason, much of the original hype around cannabis stocks has died down.
… which could be profitable in the long-run
We have already seen how the cannabis sector could grow significantly in the coming years. More states in the United States are expected to legalise its recreational use, and the long-awaited federal legalisation may be coming soon. In the rest of the world, there is a very active debate on the subject.
Governments around the world are interested in collecting more taxes and the sector offers a good opportunity to do so. Legalisation may also reduce crime. In Spain, medicinal marijuana has just been legalised, and many other European governments are preparing debates and referendum.
If you believe that cannabis companies have a promising future, you could invest a little bit every month which will help dampen the volatility. This is known as “dollar cost averaging.”
Want to learn more about these stocks? Check out their profiles on the BUX Zero app to find more information about them.
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.