Whenever I want to know what’s happening in the legal cannabis market, I don’t have to go very far.
After all, I live in the hills near Oakland, Calif., which has served as the epicenter for the legal marijuana industry since 1996, when California approved medical use.
This place is all about legal cannabis.
There’s even a district downtown known as Oaksterdam, which is lined with several legal cannabis retail outlets, not to mention a patient co-op and a marijuana school. Plus, nationally known cannabis industry research firm, the Arcview Group, is based there as well.
So I’m happy to report that, on a visit to a couple of stores last week to talk to sales folks and get their take on how things are going, I got a very upbeat report. Data is not yet available, but retailers say sales are up sharply.
And, like me, they’re expecting a great 2019.
After a rocky start to its recreational market in 2018, that California comeback is one of the reasons why I think we will see a very robust year for the industry nationwide.
Clearing Up Regulations in California
Please don’t underestimate the importance of California for the national industry. Even before California went fully legal on Jan. 1, 2018, it accounted for half of all legal sales.
Unfortunately, the rollout of legal cannabis in the nation’s largest state and most valuable marijuana market didn’t go as smoothly as many had hoped.
Established businesses complained of excessive rules and regulations, such as how products are placed in child-proof packaging. Not to mention the potential for three levels of taxes, which could account for as much as an additional 38% for the consumer.
The state also suffered from a lack of testing labs when new rules took effect on July 1. After that, sellers had to have their products tested by a licensed lab. However, there were less than three dozen available for a state that has a population of more than 35 million residents.
But in the last several weeks, the state has put forth what is supposed to be the final set of cannabis regulations. This will bring badly needed clarity to what remains the world’s largest legal cannabis market.
You might not have read this in the headlines about the industry, but make no mistake, this is a very important development. See, I believe that starting this year, California will be at least 50% larger than the market in Canada, one of the few places where marijuana is legal on a national basis.
And according to a recent report by Deloitte, the Canadian recreational market could eventually be worth $8.7 billion. That doesn’t even take into account the overall economic impact the industry will have, which could be three times larger.
Attracting the Big Buyers
Bear in mind too that the U.S. cannabis sector is coming off of a great 2018, when cannabis went fully mainstream. The sector attracted more than $5 billion in investments from big firms like tobacco giant Altria Group Inc. (NYSE:MO).
Tilray Inc. (NYSE:TLRY), a Canadian supplier with deep expertise in medical marijuana, had a successful IPO just months ago. And on Dec. 19, it announced a new joint venture with Anheuser Busch InBev SA (NYSE:BUD), the world’s leading brewer, to create new cannabis-infused, non-alcoholic drinks.
For the year ahead in cannabis, I think we will see more IPOs, as well as more investments in the space by larger corporations.
As of right now, there are roughly 50 cannabis stocks trading out of Canada. That’s double the number we saw in 2017.
That kind of success will no doubt please senior leaders at privately held cannabis firms. Still, my guess is that we won’t see a lot of action in the U.S. in the first quarter, as CEOs and CFOs assess the market’s ability to bounce back from the recent selloff.
But after that, we could see several cannabis IPOs in the U.S. for 2019. I also believe we will see more up-listings from over-the-counter exchanges to major exchanges in the U.S.
Given the ongoing federal prohibition of cannabis in the U.S., I expect that to be dominated by Canadian firms, as it was throughout 2018.
Big Business also is likely to continue the pace of investments we saw last year, again mostly with Canadian firms, because the Great White North granted full legal status to marijuana last October.
But 2019 will likely mark a move toward U.S. cannabis investments by mainstream firms. That’s because with the recent passage of the 2018 Farm Bill, hemp was removed from the U.S. Controlled Substances Act.
The move didn’t get a lot of media buzz, but analysts note it was the biggest change in U.S. drug laws in roughly the last 50 years.
When Laws Pass…
I also expect to see another bipartisan push to revamp U.S. marijuana laws. As 2018 drew to a close, we saw a lot of support for the STATES Act.
While the bill doesn’t amount to full federal legalization, it’s a great workaround that would allow states to pass their own marijuana laws and regulatory frameworks. It recently had 10 co-sponsors in the Senate.
Meantime, the states aren’t just sitting on their hands, waiting for federal action. As they have for years now, they are taking the lead in legalizing marijuana.
Just look at New York, where Gov. Andrew Cuomo is pushing to fully legalize the nation’s third-most-populous state.
“Let’s legalize the adult use of recreational marijuana, once and for all,” Cuomo said in a Dec. 17 speech outlining his priorities for the first 100 days of 2019.
He then reiterated his support of legalization a few days later in a speech, just after he was sworn in for his third term. If Cuomo gets his way – and I think he will – this could roll out in just a few months.
In fact, one of my major predictions for the year is that New York is going to be the next state to go fully legal.
And that’ll be a big boost to the firms looking to take a share of New York’s cannabis industry, which could be worth up to $1.7 billion dollars a year.
But of course, New York won’t be alone in moving to legalize cannabis this year. 2019 could also be the year states like New Jersey, Vermont, and even Virginia go fully legal.
We’ll be following it all, so be sure to check back here for more…
How to Get In
If you’re new to Cannabis investing, there is a relatively new exchange traded fund (ETF) that’s a great place to get started and develop industry expertise while making money.
The ETFMG Alternative Harvest ETF (NYSE:MJ) has $652 million in assets under management and owns 38 of the best stocks. This gives it wide exposure to the whole sector.
MJ covers growers like Canopy Growth Corp. (NYSE:CGC), biotech leaders GW Pharmaceuticals plc (Nasdaq:GWPH), and everything in between. Plus, you’ll get a shot at new stocks, like Tilray Inc. (Nasdaq:TLRY), which recently had a very successful initial public offering.
The cannabis stock ETF has been a performer of late, climbing nearly 33% since Dec. 27th.
At 0.75%, the management fees come in a little higher than I typically like to pay. But in a new field like this, we need fund managers with deep expertise, and I am willing to pay a little more than my usual limit of 0.6%.
Now, there’s another way to get in on this fast moving industry, as 2019 shapes up to be a profitable year for the choice cannabis firms.
But you have to know where to look, and which companies to avoid all together, to make this work.
That’s why I also suggest you take a look at this presentation from the National Institute for Cannabis Investors (NICI), where I’m a board member.
It’ll quickly fill you in on some of the best plays in the hottest cannabis trends on the market, and set you up to profit from the stocks best poised to soar this year.
This is a great group of highly skilled folks who have spent months deeply researching every side of this industry… including the insights they’ve gotten from key insider sources.
Of course, I will have a lot more to say about the cannabis investment climate the rest of this year right here. So, please check back with me to make sure you stay in the know.
See you back here soon.