From individual shareholders to financial institutions, cannabis is about to make a big impact on the economic landscape.
Written by Michael Garbuz
With recreational adult-use marketing opening up on October 17, 2018 and a flourishing medical market (over 100 Licensed Producers (LPs) who can sell to medical consumers) in Canada, there is no doubt that investing in the cannabis industry has become the new hot topic for Canadians itching for portfolio diversity and quick money wins.
According to Arcview Market Research, the North American legal cannabis market is estimated to balloon to over $25 billion in the next three years. The conversation around cannabis is growing louder with an increasing number of entrepreneurs, law and accounting firms, investment banks, and big businesses flooding to the industry. Further to this, executives from Big Pharma, alcohol, tobacco, and countless other industries are lining up to get their own piece of the pie.
Cannabis growth in North America
With a shifting global perspective around cannabis and a departure from stoner culture stereotypes, countries around the world have begun discussions around changing policies. The initial decision by several US states and Canada to create medicinally-friendly cannabis regulations prompted other countries to follow suit. Full adult-use legalization is starting to be discussed and implemented in a growing number of jurisdictions, with Canada now officially the first G7 nation to fully legalize. The US led the way through a systematic state-by-state legalization, followed by an informed focus on advanced products and delivery forms. Furthermore, California’s and Canada’s willingness to move towards legalizing recreational use triggered a second wave of laws internationally to increase access to medicinal cannabis.
The size of cannabis companies, although growing, is relatively small to what most industry experts expect it will be in a few years as global demand and markets continue to open up. We foresee the evolution of the cannabis industry being similar — or even bigger — to that of alcohol, where some of the most successful companies in the world have ensured both new and existing consumers continue to identify with their brand. The industry is still strategizing around how to achieve that lofty goal, as marketing is severely restricted (at least in Canada) and companies are still developing their first go-to-market product types, delivery systems, and brand identities. What has been clear in recreational markets in the US is that success in onboarding new customers comes equally from what is inside and outside the product.
Investing in the trend
Of course, there are brands currently operating within the industry that will grow to become behemoths, completely dominating the space. Given that the cannabis market is still in a relatively start-up stage, there is still much promise for an industry so young, but that still comes with risks. Nothing new and exciting comes without its inherent uncertainties. With a high risk, high reward profile, cannabis stocks and investments are certainly no exception to that rule.
Investors in cannabis are typically looking for outsized returns, but understand that there is generally large volatility with cannabis issuers, which comes with a chance of losses.
Let’s be clear: cannabis stocks aren’t like Apple, BMO, or Google in that they don’t have established — or proven — business models, customer sentiment, or a defined market, for that matter. Many cannabis companies raise capital to quickly scale their operations and create more product to meet demand, but none of that guarantees that their products will sell over the long term.
If potential shareholders want to buy into the market, they will need to do their due diligence and research the companies that will be able to obtain a large market share in the future. It will be key to focus on the long game instead of short-term growth and, of course, do not invest on emotion.
A cannabis industry expert and strategist, Michael Garbuz shapes ideas with stakeholders across the industry. Prior to his role as corporate strategy and legal counsel at CannaRoyalty, Michael helped build, lead, and significantly grow the cannabis industry group at Cassels Brock & Blackwell. He has a keen interest in entrepreneurship and represents CannaRoyalty frequently at cannabis industry conferences and panels. He holds a law degree from the University of Toronto and an Honours Specialization Degree in Biological and Medical Sciences from Western University.