DENVER, November 29, 2018 /PRNewswire/ --
Profitability and more widespread legality are drawing fresh investment to the cannabis sector.
- Major investors and outside companies are putting big money into cannabis.
- Undervalued companies provide good opportunities for new investors in the sector.
- Following the legalization of recreational cannabis in Canada, companies in the United States are seeing even larger market caps.
- As attitudes change, more cannabis companies are expected to soon be listed on major U.S. exchanges.
With a strong pick-and-shovel strategy alongside recent direct investment in cannabis, Generation Alpha, Inc.
(OTC:GNAL) (GNAL Profile) is among the cannabis companies seeing good growth. Tilray, Inc. (NASDAQ:TLRY) is
moving to benefit from fresh investor interest through public offerings in Canada and
the United States. Canopy Growth Corp. (NYSE:CGC) (TSX:WEED) has benefited from a
substantial investment from Constellation Brands, Inc. (NYSE:STZ), the result of a trend in which U.S. alcohol and tobacco
companies eye up cannabis. The industry's upward trend is also reflected in the soaring revenues of Cronos Group, Inc.
(NASDAQ:CRON) (TSX:CRON).
To view an infographic of this editorial, click here.
The Mainstreaming of Cannabis
A state-legal cannabis industry has existed in North America for more than 20 years. Since
the legalization of medical marijuana in California in 1996, the industry has spread at a
growing rate. The majority of U.S. states now allow its sale for medical purposes. One-fifth of the states, plus all of
Canada, have legal recreational cannabis markets. Yet the cannabis industry remains on the
fringe of the American economy, largely separate from the work of mainstream businesses and investors.
That's now changing. Growing numbers of investors are putting money into cannabis, cannabis companies are able to raise
substantial capital for growth initiatives, and large enterprises have taken an interest in cannabis-focused ventures with a view
to establish partnerships and make investments. With these changes, cannabis becoming fully integrated into financial markets
appears to be a logical next step.
The Acceptable Face of Cannabis
Over the past few years, the cannabis industry has seen growing acceptance of its place in society and the economy. This is
due in no small part to the professionalism of the companies working in the sector, including companies such as Generation Alpha, Inc.
(OTC:GNAL).
Generation Alpha started out as a support provider for the cannabis industry, taking a basic supply approach to the business.
A vertically integrated technology innovator, the company developed, manufactured and distributed products and solutions for
cannabis growers, which were springing up across the United States. As a supplier of
horticultural and lighting equipment, GNAL provided essential supplies that cannabis cultivators relied on to grow their
businesses.
Generation Alpha has seen rising investment in its organization. As recently as April, it announced a $25 million in investment from an existing shareholder
under its previous name of Solis Tek. Other cannabis companies have also seen substantial investments over the past year.
The most practically and symbolically significant is the investment of $4 billion in Canadian company Canopy Growth by American beverage giant
Constellation Brands. Not only does this move represent a huge financial boost for the company, but it also signifies an
important moment for the entire industry. This massive investment from a beverage manufacturer reflects the growing interest of
tobacco and alcohol companies in cannabis and their willingness to risk money in a relatively new industry, possibly signifying a
bigger wave of change coming down the line.
Undervalued Assets
There's a marked disparity between Constellations Brands' investment in the sector and that recently received by Generation
Alpha and other cannabis brands. The reason is likely because Constellation has recognized what others have not - many cannabis
companies may be undervalued.
It's hard to judge the value of assets in an industry that's going through such big changes. But looking at the fundamentals,
it's easy to spot places where value may not yet be recognized.
Generation Alpha's move into cultivation and processing of cannabis is an example of this. The company recently acquired a cultivation and processing facility in Phoenix,
Arizona. GNAL is using its experience in the support side of the industry to turn this 70,000-square-foot space into a technologically advanced growing facility. With the site scheduled to
become operational in the first half of 2019, the profit from this decision should soon be realized.
The recent legalization of recreational cannabis in Canada this October showed the stark
imbalance between supply and demand in the cannabis market. Within weeks, the country was facing a cannabis shortage as consumers rushed to enjoy a legal high. Similar patterns are likely to play out in
U.S. states as legalization - whether for medical or for recreational purposes - spreads across the country. If, as many expect,
U.S. Attorney General Jeff Sessions' departure leads the Trump administration to a more liberal
stance, then rising demand is even more likely, ensuring both an eager market and a good price for the product coming out of
Generation Alpha's facility.
And then there's the long view. Big businesses now have a vested interest in cannabis. This interest will naturally lead to
heavier lobbying for reform of anti-cannabis laws; not just in the United States, but around the
world. The next decade will likely be a time of huge global growth for the industry, thanks to social and political change. The
value of companies such as Generation Alpha could grow significantly as these pioneering cannabis companies set their sights on
becoming the backbone of a mature global industry.
The Canada Effect
Events in Canada provide the surest signs of the coming shift.
As the first G8 country to legalize recreational cannabis, Canada is setting an example for
the world, converting cannabis consumption from a drain on law enforcement into an asset that provides tax income for the
government. The change hasn't just affected Canadian companies; it has also touched those in the United
States, including Generation Alpha. Both north and south of the border, the market cap for cannabis has grown as investors
strategically place their money into the burgeoning industry.
Canada is now leading the way in cannabis. While it might take time for the United States to catch up at a federal level, American companies are already feeling the benefits.
Onto the Exchanges
All this growth means more companies listing on major markets. Together with a broader social shift in attitudes towards
cannabis, a change at the top of the economy is extremely likely. As the power of cannabis companies grows, it's surely only a
matter of time before major U.S. exchanges add more American cannabis companies. With that, these companies will be able to tap
into even more resources through the finance of major investors. And once the inconsistency between federal and state law is
addressed, major banking will add another route to funds.
Companies with strong, proven strategies will be best placed to benefit from this surge in funding. With its core
pick-and-shovel strategy, Generation Alpha fits the bill. By supplying goods and services to cannabis growers, GNAL will be
ideally positioned to profit from the growth while keeping a buffer between its core business and shifts in the price of
cannabis. With innovations such as its high-efficiency LED lighting system, the
company will be a strong competitor among other cannabis support companies.
One of the companies looking to turn cannabis' credibility into financial resources is Tilray, Inc. (NASDAQ:TLRY). A
prominent provider of medical marijuana, Tilray has used a well-developed research and design program to gain an edge in the
fast-growing industry. It's currently using public offerings in Canada and the United States to seek fresh funds from investors, but
its ambitions aren't limited to North America. The company has customers on five continents,
thanks to the growing international acceptance of medical cannabis.
Through early moves in the sector, Canopy Growth Corp. (NYSE:CGC) (TSX:WEED) has established itself as one of
the big names in Canadian cannabis. Working both alone and in partnership with others, Canopy Growth has evolved into a
multifaceted company with a strong investment in brand and product differentiation.
Canopy Growth Corp. made news earlier this year when it received a second substantial round of investment from U.S. beverage
company Constellation Brands, Inc. (NYSE:STZ). That $4 billion investment has made
Constellation Brands a substantial shareholder in Canopy Growth, owning a third of the company. The investment was a major coup
for the cannabis company, giving it the sort of resources that most of its competitors only dream of. But it may also prove to be
an important moment for Constellation Brands, as it adds cannabis and cannabis-infused products to its repertoire of alcoholic
drinks.
As tobacco and alcohol companies look for ways to deal with their own falling sales, it's likely that a growing number will
turn to cannabis, providing fresh investment for the market. When they do, there will be plenty of strong options. The growth of
medical and recreational markets has led to impressive revenue growth for companies. For example, Cronos Group, Inc.
(NASDAQ:CRON) (TSX:CRON) saw revenues increase by 186 percent in the third quarter
of 2018. By partnering with other businesses, increasing its cultivation space, and getting involved in the Latin American
cannabis market, the company has been able to keep expanding its operations.
Big money is flowing into the cannabis industry. As its prestige rises, those funds are set to keep growing for a long while
yet.
For more information about Generation Alpha, please visit Generation Alpha, Inc.
(OTC:GNAL).
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