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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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How To Profit From Canada’s $22 Billion Marijuana Boom

greenhouse

Colorado was the first U.S. state to set up a booming legal marijuana industry a few years ago, inspiring other states to follow suit. Bit by bit, the dominoes are starting to fall and marijuana is slowly becoming more available across the country.

However, the federal government is once again hostile to marijuana – with Attorney General Jeff Sessions a particularly fierce opponent of legalization – raising questions about what comes next.

But America’s northern neighbor does not have that problem. The Canadian government is moving quickly to legalize marijuana and, unlike the patchwork state-by-state approach unfolding in the U.S., Canada is set to make it legal nationwide by this time next year.

That has kicked off speculation of a green gold rush in Canada, a market that Deloitte estimates could be worth more than $22 billion annually.

It is an investor’s dream: a market where there is huge pent up demand not currently being met, and federal legislation slated to open the flood gates. Even better, because marijuana suppliers must register and receive approval from the federal government to sell products, there are serious barriers to entry. This presents a massive case of “first-mover advantage” – the companies that get approved first will cash in on the legal marijuana bonanza.

One company in particular is poised to capture a sizable share of the market. Invictus MD (TSX:IMH.V; OTC:IVITF), a legal medical marijuana provider, is ready to hit the ground running when federal legalization passes. Here are five reasons why Invictus is a crucial company for investors to keep an eye on.

1. First-mover advantage. There are a little more than 50 licensed producers of marijuana, but Health Canada, the federal regulator, recently decided to accelerate the licensing process, recognizing that there might not be enough supply when legalization comes into effect on July 1, 2018. Invictus MD is one of these companies that has 2 of the 50 licenses in 2 major provinces, perfectly positioned to capitalize on what is largely a captive market. There are more than 400 other companies in line awaiting their licenses, but Invictus is ready to go. And there is growing speculation that suppliers will struggle to meet market demand in 2018.

2. Invictus is the first integrated marijuana-dividend stock. Invictus is the first marijuana supplier to pay a dividend to shareholders, dishing out $1 million last December. Invictus was able to do this through a series of prudent acquisitions, including upstream cultivators as well as fertilizer producers.

Last December, Invictus acquired a 33.33 percent stake in AB Laboratories Inc., a licensed producer of medical marijuana in Ontario. It also has a 33.33 percent stake in AB Ventures, which will expand Invictus’ marijuana cultivation capacity based on the 100 acres AB Ventures owns. In April, it acquired a 100 percent stake in Acreage Pharms, another licensed producer in Alberta. “With the Company’s acquisition of 100 percent of Licensed Producer Acreage Pharms in Alberta, we now have 250 acres of cultivation space that stretches from Alberta to Ontario,” Dan Kriznic, executive chairman of Invictus, said in an April statement.

In fact, Invictus (TSX:IMH.V; OTC:IVITF) has stitched together assets that make it an integrated marijuana supplier, and will benefit from selling marijuana, but also from the growth of the sector as a whole. Through the sale of fertilizers, Invictus will profit even from its competitors. As was the case with the gold rush, some of the biggest winners were the sellers of picks and shovels rather than just the explorers who found gold.

3. Market is huge. The Canadian medical marijuana market alone is worth $400 million, and growing rapidly. But that will be a small fraction of the recreational market, which will become legal in a year.

There are around 150,000 medical marijuana users, but some see the recreational market exploding to 4 million users in the first few years of legalization, with sales exceeding $8 billion annually. Deloitte says the economic impact could reach $22.6 billion – a figure larger than the wine, beer and spirits market.

When compared to the $6.7 billion size of the U.S. marijuana market, Canada’s legal marijuana market could exceed that of its much larger southern neighbor.

4. Medical marijuana companies are already exploding on the prospect of legalization. Legalization is sweeping the continent, opening up lucrative opportunities for companies that have existed for a long time by servicing the medical marijuana market. As governments relent on legalization, the valuation of medical marijuana stocks have skyrocketed. Here are the gains from 2016 for the top medical marijuana producers:

• AXIM Biotechnologies (NASDAQOTH:AXIM): exploded 1,720 percent
• Corbus Pharmaceuticals (NASDAQ:CRBP) was up 431 percent
• Aphria (NASDAQOTH:APHQF) grew 381 percent
• Aurora Cannabis (NASDAQOTH:ACBFF) was up 299 percent
• Canopy Growth Corp. (NASDAQOTH:TWMJF) up 259 percent
• Medical Marijuana (NASDAQOTH:MJNA) up 254 percent
• GW Pharmaceuticals (NASDAQ:GWPH) was up 64 percent

But the marijuana bonanza is set to continue with the recent launch of the first cannabis-based exchange-traded fund (ETF), called the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ). The new ETF will spark a wave of investment into marijuana stocks. Invictus is included in the ETF, along with about two dozen other marijuana suppliers.

5. Top-notch management. Invictus MD is headed up by a great management team, with experience growing small companies. They have multiple strains of marijuana, ranging from pain management to cancer, epilepsy and anxiety. And, of course, the recreational sector is a massive gold mine-in- waiting. But while dozens and even hundreds of companies are rushing to build their marijuana supply chains from scratch, Invictus’ (TSX:IMH.V; OTC:IVITF) management has been carefully putting together the seeds of a hugely profitable marijuana supplier for years. Dan Kriznic, executive chairman and founder, has a track record of transforming small companies in a variety of sectors to multi-million-dollar enterprises.

The legalization of marijuana in the U.S. sparked a proliferation of suppliers and a wave of money from investors looking to cash in on the billion-dollar market that was created virtually overnight. But the Canadian market is almost unknown to many big investors, which means there is huge untapped potential for those in the know. There is no shortage of catalysts on the near-term horizon, and full legalization in Canada is a year away. Invictus is one of the few candidates set to profit from this green gold rush.

Honorable Mentions:

Corbus Pharmaceuticals (NASDAQ:CRBP): is a small-cap drug developer with a $400 million market cap. The company’s primary product is a synthetic oral endocannabinoid-mimetic – A drug that binds to the same receptors as cannabis. The drug mimics cannabinoid-based medications and has shown tremendous promise in reducing pain and inflammation.

Another biotech company which is not entirely dependent on cannabinoid-based drugs is Cara Therapeutics (NASDAQ:CARA). The company focuses primarily on pain management and pruritus. Cara Therapeutics aims to provide safe alternatives to more dangerous drugs used to treat serious problems which may prevent patients from realizing their full potential.

Zybnerba Pharmaceuticals (NASDAQ:ZYNE): is a company that is diving deep into cannabinoid therapies. Currently, the company has only two drugs in development; ZYN001 and ZYN002. ZYN001, a THC pro-drug patch, aims to treat a number of conditions through a revolutionary transdermal delivery system while ZYN002, another transdermal delivery system, this time through a gel, is the first and only synthetic non-psychoactive CBD drug of its kind. And Zynerba has the patents on both products.

AbbeVie Inc (NYSE:ABBV): is one of the few NYSE listed companies producing marijuana related products. AbbeVie’s claim to fame is their synthetic-THC drug, Marinol. The FDA-approved drug has revolutionized treatment of nausea in patients with cancer and is also prescribed to patients with AIDS suffering from appetite loss. This pharmaceutical manufacturer sells its products worldwide and will be even more appealing to investors in the coming years as positions on marijuana become more relaxed.

Astra Zeneca Plc. (NYSE:AZN): This British-Swedish Pharma giant has seen a strong run so far this year. Although Trump’s healthcare reforms have not impressed the market, analysts remain bullish on this high dividend yielding pharmaceutical giant.

By Charles Kennedy

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