LONDON, September 19, 2017 /PRNewswire/ --
The U.S. marijuana market is forecast to reach $25 billion by 2020, with recreational use currently legalized in only two states, while the Canadian pot
market forecast to be worth about $8 billion, and recreational use is expected to be legalized
countrywide in less than a year.
Some think $25 billion is an understatement: Cowen and Company investment bank analysts see it
climbing to $50 billion by 2026-in the U.S. alone, driving by a legalization wave. Keeping a focus on Sanofi (NYSE:SNY),
Compass Diversified Holdings LLC (NYSE:CODI), Innovative Industrial Properties, Inc. (NYSE:IIRP), Beleave Inc. (CSE: BE.CN)
(OTC:BLEVF), MedReleaf Corp. (OTC:MEDFF) (TSX: LEAF.TO)
Then we have Canada, where pot will be legalized federally, not state-by-state. Medical
marijuana is already federally legalized, and in line with a government bill, it should be legalized for recreational use by July
next year. This could open the flood gates for producers whose stocks are already soaring to amazing heights.
The launch of the first marijuana exchange-traded fund (ETF) in Canada took place in the
first week of April, giving us diverse exposure to this tantalizing sector. The Horizons Medical Marijuana Life Sciences ETF
(TSX:HMMJ) launched on the Toronto Stock Exchange with 11 Canadian-listed stocks and four U.S.-listed stocks.
This is hands down the biggest bull market of the twenty-first century, leading pundits to refer to it as the 'Green Gold
Rush', but gaining exposure to it as an investor can be a bit tricky. While there are a number of small-cap Canadian growers
whose stocks have shot up this year, there's also less-risky exposure in the form of giant pharmas pursuing cannabinoid drugs,
pick and shovel companies who are the backbone of the multi-billion-dollar industry, or even more uniquely-the first pot
'streaming' company in this lucrative evolution.
Here are 5 companies we think are worth watching closely in the immediate future:
#1 Sanofi (NYSE:SNY)
If you're wondering why big pharma isn't cashing in on the medical marijuana bonzana, it's because they are biding their time
and hedging their bets. They're sitting on the sidelines right now as opposed to dropping billions to re-invent wheel. They are
letting the ambitious small-caps spend all the cash with development and clinical trials. Once it's all across the finish line,
they will swoop in and buy them up. They won't compete with them. They will own them-eventually, so there's no need to dabble in
this until it's all solid. For now though, big pharma is bent on blocking progress in terms of legalization of recreational
marijuana, but this is smoke and mirrors-they're just buying time, with some working on synthetic
strains of marijuana.
Given the momentum particularly in Canada right now, we think it's time to start looking at a
couple of the biggest pharma companies who will likely benefit from all the small-cap breakthroughs in this segment.
So we start with France-based Sanofi, which is currently trading as a $123.99-billion market cap company. Since
its IPO in July 2002, Sanofi's performance year to date is 8.41 percent. The company has seen EPS
growth of 1.40 percent for the last year, and performance of 10.19 percent for the same period.
The biggest growth drivers will likely be Dupixent-a powerful new drug for eczema--which is expected to hit sales of
US$4.3 billion by 2022, over half of this in the U.S. Dupixent is a major drug blockbuster, and it
won FDA approval on 28 March. This is a huge catalyst that sets up Sanofi for a brilliant year.
Another major catalyst comes with the biotech drug dupilumab for treating severe asthma. This drug, by Sanofi and Regeneron,
which saw a release of clinical trial data last week. This is essentially the same drug as Dupixent. Under the name Dupixent, the
approved drug is for atopic dermatitis. But its dual use, under the name dupilumab , has not met its two primary endpoints in a late-stage Phase III clinical study.
This is huge, because this is a multi-billion-dollar market, and will challenge GlaxoSmithKline, the leader in this field.
#2 Cannabis Wheaton ( CBW.V ; KWFLF
) ,
This is the most unique of the bunch because it's doing what Silver Wheaton has done for the mining industry,
and-arguably-what Netflix has done for movies and TV series: It's streaming pot.
Not only is it a novel idea, it's also led by the biggest pioneering names in the industry and is backed by heavy-weight
politicians, both liberal and conservative.
Cannabis Wheaton is jumping into a huge market for which supply is already struggling to meet demand-and we haven't even
gotten to Canadian legalization for recreational use next summer.
When we say that CBW is 'streaming' pot, we mean that it's offering a lifeline to new and existing growers who need financing
to get off the ground fast and meet demand that is expected to explode by July 2018. The fast grow
strategy has CBW stepping in with a unique royalty business model that is entirely new to this market. The highly attractive
upside here is that this model removes the risks associated with putting all your money into a single-crop producer.
Cannabis Wheaton has already lined up 15 partners, with 17 facilities-for 1.4 million effective square feet of growing
acreage. In return, they get minority equity interests and a portion of the pot produced. The company is a catalyst for change in
this expected $8-billion market that is gearing up for game-changing legalization in less than a
year.
They've also got 39 solid clinic relationships, and this is growing fast, with access to over 30,000 registered medical
marijuana patients.
It's a win-win: Investors get less risky and diversified exposure to this huge market, while producers get more avenues for
financing and growth.
This is the evolution of finance for the traditional licensed cannabis producer-and Cannabis Wheaton is the only company on
this track.
The most recent catalyst was CBW's $15-million purchase of common shares of ABcann Global Corporation in August. This is just an initial
investment in ABcann as part of a larger investment to fund a major expansion at its second production facility. The deal will
add another 50,000 square feet of pot production to ABcann's portfolio. Next year, Cannabis Wheaton intends to invest another
$15 million in ABcann, at 2x the trading price.
Cannabis Wheaton gets 50 percent of the production from ABcann's 50,000 square feet of new cultivation for almost 100 years.
This is a business and model to watch very closely.
#3 Scotts Mira c l e-Gro
This is a 'pick and shovel' company for the marijuana industry, and the industry is going to need a lot of them, making them a
huge market opportunity. SMG is presently trading as a $5.52-billion market cap company. SMG
markets a lot of products, including the Miracle-Gro brand, Scotts grass seeks, pest deterrent Ortho, and weed killer Roundup,
among others. But they've also been hungrily eyeing the marijuana market and they are manufacturing a nicely growing collection
of products for use in hydroponic growing, which is a huge market for pot.
If you aren't familiar yet with hydroponics, as an investor we recommend a quick education. Hydroponics is the process of
growing plants without soil. SMG has a wholly owned subsidiary, Hawthorne Gardening Company, that is focus on hydroponics as 10
percent of its total sales -for now-and a tantalizing growth rate on that figure. Year-over-year, this segment has organically
grown 20 percent--at double digits. But Scotts is also actively acquiring companies in this space.
What SMG offers, then, is a way to gain unique exposure to the marijuana industry, without going all out for direct pot
stocks.
#4 Pfizer
This drug maker offers sizzling dividends, and its growth picture looks very solid, for the first time in a long time.
Pfizer's two segments-innovative health and essential health-generated $52.8 billion in revenue
last year, with net income of $7.2 billion. Its operating cash flow was nearly $16 billion. While its legacy products are experiencing declining sales, its new products are now very
promising, and this is the year that we'll really see growth, particularly with two new cancer drugs and an autoimmune disease
drug.
What is most likely Pfizer's most attractive aspect is its financial flexibility, which puts it ahead of its peers. The
company's debt-to-equity ratio wasn't great for Q1, but keep in mind, this was because of a series of acquisitions (Anacor
Pharmaceuticals, Hospira, Medivation).
More than any other, this company is set up with cash that will allow it to take advantage of any really good acquisition
opportunities. Even amid still competition and tough patent battles, Pfizer is still impressing with increases in revenues
year-on-year.
But investors right now are clearly watching how things played for another company's drug-Allergan's Restatis, a
blockbuster dry-eye disease drug. All the patents are now owned by the Saint Regis Mohawk Tribe, which will get millions of
dollars upfront, along with annual royalties. Allergen will get the exclusive rights to market the drug. What it means is that
generic threats to the drug will be hard to make. The argument is that Pfizer, which is also facing challenges to its patent
exclusivity for drug Prevnar 13, may seek to copy Allergan's brilliant move here.
#5 Canopy Growth Corp.
Currently trading with a market cap of CAD$1.66 billion, this company is considered Canada's first 'cannabis unicorn', and it's been on a bull run for a while.
This company is ripe for the legalization of marijuana for recreational use. It's just announced the licensing of new
facilities at its flagship project at Smiths Falls, with expanded growing capabilities. It's
also just been granted approval for more expansion. This is also the first cannabis company to be included in the new S&P/TSX
Composite Index.
Shares in Canopy Growth jumped 9 percent to $10.84 on 27 March, just when the Canadian government clarified that it intended to legalize recreational marijuana
in time for Canada Day celebrations in July next year.
Overall, Canopy has seen its stock rise more than 386 percent in the past year, making it a real 'unicorn' (the favored term
for start-ups hitting the billion-dollar mark).
Other companies to watch closely:
Innovative Industrial Properties (NYSE:IIPR) is set to boom in the coming years. The company has formulated a strategy
to target properties for acquisition and management to be leased to state-licensed marijuana growers, a market which is certain to flourish.
Innovative Industrial's leasing plan is simple: the tenant is responsible for everything from taxes to maintenance. The company's
hands-off approach allows for a steady stream of revenue with little oversight.
It is clear that investors see potential in Innovative Industrial. The company has seen a steady uptick in its stock's price
and volume in recent months, and it's sure to gain speed in no time.
Beleave (CSE:BE.CN) ( OTC: BLEVF): Beleave is a biotech company focused on the production of medical marijuana
in Canada. Its wholly-owned subsidiary, First Access, applied for a pre-license inspection in
March 2017.
Beleave became Cannabis Wheaton's fifth production partner in May and the
parties will work cooperatively to identify an appropriate second site to be acquired and developed by a newly formed special
purpose subsidiary of Beleave ("NewCo"). The proposed second site is expected to be located in Ontario and will be designed to accommodate an estimated 200,000 square feet of cultivation space.
The company's stock has fallen significantly in May, but has stabilized since. We currently see Beleave as one of the most
undervalued growers.
MedReleaf Corp (TSX:LEAF.TO ) ( OTC: MEDFF): As a licensed producer of cannabis-based pharmaceutical products,
MedReleaf Corp has a head start on the coming boom in Canada. Early July has seen a bounce in the stock price, and investors may look to ride it upward from here.
Med Releaf could become Canada's second biggest medical marijuana company after Canopy Growth
Cooperation as many analysts expect the 'legal weed' industry to grow 25% on an annual basis over the next 10 years.
MedReleaf has seen its share price fall since June, but has steadied out in recent months and could be poised for gains as the
expected legalization of recreational marijuana materializes.
Compass Diversified Holdings (NYSE:CODI) is a holdings company which rings true to its name. Its portfolio is
diversified and expansive. The company has been incredibly successful over the past 20 years, in its acquisitions and the
management of its acquisitions.
Compass Diversified is included in this list due to its Manitoba Harvest holding.
Manitoba Harvest is a leading hemp foods producer and distributor, priding itself on high quality and easily accessible
products.
By. Meredith Taylor
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
FORWARD-LOOKING STATEMENT. Statements in this communication which are not purely historical are forward-looking statements
and include statements regarding beliefs, plans, intent, predictions or other statements of future tense. Forward looking
statements in this article include that new cannabis legalizing legislation will create an $8-billion-dollar industry; that there will likely be a supply shortage; that this industry will be $25 billion annually in
the US; that Cannabis Wheaton's business model reduces risk for investors; the ability to generate revenue or take
production through the streaming agreements. Forward-looking information is based on the opinions and estimates of Cannabis
Wheaton at the date the information is made, and is subject to a variety of risks and uncertainties and other factors that could
cause actual events or results to differ materially from those projected in the forward-looking information. Forward looking
statements involve known and unknown risks and uncertainties which may not prove to be accurate. Actual results and outcomes may
differ materially from what is expressed or forecasted in these forward-looking statements. Matters that may affect the outcome
of these forward looking statements include that markets may not materialize as expected; marijuana may not turn out to have as
large a market as thought or be as lucrative as thought as a result of competition or other factors; Cannabis Wheaton may not be
able to diversify or scale up as thought because of potential lack of capital, lack of facilities, regulatory compliance
requirements in Canada or outside of Canada or lack of suitable
employees or contacts; partners of Cannabis Wheaton may not be granted licenses or additional capacity under existing licenses
for them to grow for the cannabis market; and other risks affecting Cannabis Wheaton in particular and the cannabis industry
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