Currently marijuana remains illegal at a federal level in the US, and this is preventing Canadian producers from participating there. However, there are still opportunities available to leaders in Canada.
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Greg Engel, CEO of OrganiGram Holdings (NASDAQ:OGI,TSXV:OGI) and a speaker at the panel, said that, while his firm won’t operate in the US, there is a viable way for the company to set up a cannabidiol (CBD) business thanks to the legalization of hemp.
“As we saw at the (US Food and Drug Administration) public hearing … there is still some uncertainty around CBD,” said Engel. “So when you look at the market you have to look at where the opportunity is, not only today but in the future, and our approach is how do we enter through technology.”
Finding the right American companies to partner with or work alongside can also help companies break through to the US market when the time comes for a legal entry.
This is a strategy Jeannette VanderMarel, co-CEO of 48North Cannabis (TSXV:NRTH), said her company is using.
“We (are partnered) with several US companies to bring well-known brands from the US and take their IP, their technology, their scientists and help them replicate those products in our facility using Canadian cannabis,” she explained.
For VanderMarel, brand awareness is a key focus of pre-legalization efforts in the US. She believes developing brand curiosity and loyalty is beneficial and may provide companies with an edge.
Acquiring companies that make devices or equipment that are used in the sector but are not directly related to cannabis is another way to build a profile in the US.
“There are ways to work within the regulations, but you cannot be cannabis-touching anywhere in the US. I respect the laws of every country we live and work in, and it’s really important to not come anywhere touching that line,” VanderMarel said during the panel.
Morgan Paxhia, managing partner and co-founder of San Francisco-based Poseidon Asset Management, said the fractured nature of the US market creates challenges due to the different regulations.
He noted that right now, as various states like Illinois work through their own regulations, the US market is even more opaque than usual, subject to change at any given moment. “Every state looks so different,” said Paxhia. “And when you get into that market it can look so different in just a couple months’ time.”
He explained how California, a market he is especially invested in right now, offers a view of a state with several ongoing and changing sub-markets.
“(The San Francisco, LA and San Diego markets) are all very different, and how they are evolving is all different. It’s so driven by the regulatory framework,” Paxhia said.
Despite interest in the US space from the investment market, Paxhia said Canada still has a lot of opportunities thanks to the depth of capital in the cannabis industry, along with the innovation seen.
“From Canada’s perspective, this could be the hotbed of innovation for delivery,” he told the audience. “Whether it’s medical, transdermal, topical or a tincture, or any other kind of delivery, I think there is just so much opportunity to develop that here because so much infrastructure has been established.”
When the US will legalize cannabis on a federal level is hazy, but what is crystal clear is that the cannabis industry in America — as fragmented as it may be — is offering investors a new growth sector thanks to investment in multi-state operators.
During a panel at the Lift Cannabis Business Conference, a component of the expo, Vivien Azer, managing director for consumer research in the beverages, cannabis and tobacco markets for Cowen (NASDAQ:COWN), said she could see the current US administration moving forward with a cannabis program before the next elections in 2020.
Azer explained that if the numbers for US President Donald Trump dip in the lead up to the next election, he could employ a precise deployment of the STATES Act or some other cannabis legalization program to help get re-elected.
The STATES Act is a proposed bill that would create protections at the federal level for operations made legal by policies at the state level.
In the meantime, investors looking to get into the US market should look for companies that are closely adhering to all regulations, while simultaneously preparing for legalization.
Don’t forget to follow us @INN_Cannabis for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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At this year’s Lift & Co. (TSXV:LIFT,OTCQB:LFCOF) Cannabis Expo in Toronto, industry leaders took part in two investment-focused panels offering analysis, insight and tips for investing in cannabis in 2019.
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Erich Mauff, founder and president of multi-state operator (MSO) Jushi (NEO:JUSH); Rosy Mondin, CEO of Quadron Cannatech (CSE:QCC,OTC:QUDCF); and Craig Wiggins, founder and managing director of The Cannalysts, offered their takes on approaching the sector at the “Cannabis Investing 2.0” panel held on Saturday (June 8).
Wiggins noted that he is approaching investment this year cautiously, being very careful and paying close attention to trend analysis on US companies.
“We really look at financial statements at The Cannalysts. We look at (a company’s) pitch deck for undelivered promises and we track the pitch deck against promises, but right now I’m being very careful and deliberate,” he explained.
Mondin, who runs an extraction solutions company, sees potential in investing in her sector ahead of “Cannabis 2.0” legalization this fall, when edibles, topicals and a host of other cannabis, cannabis-infused and cannabis-related products will become legal in Canada.
“I’ve been kind of banging this extraction drum for four years,” she said. “We see the markets moving towards that. That is where a lot of the money is going now, so extraction is really that next play.”
Mondin noted that a variety of products that depend on the extraction space remain illegal in Canada. The federal government is set to deliver regulations on these products on or before October 17.
While new projections show approximately 1.5 million new consumers will enter the marijuana space thanks to edibles, there is skepticism that these products will actually be available in 2019.
The aggregation of craft brands by legacy companies is another area of the sector that Mondin prompted investors to keep an eye on.
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While Mondin and Wiggins track cannabis developments on both sides of the border, as the leader of an MSO, Mauff is focused on the US market, where states like California and Colorado dominate the narrative.
“It’s hard to break the US into one single play. I don’t think people appreciate the complexity of state-by-state regulation, not to mention a confused federal stance at the moment, but we continue to like retail, we like extraction and we selectively like cultivation.”
Mauff’s firm made its public debut on the NEO Exchange on Monday (June 10).
Investment interest in the US market has picked up as MSOs offer exposure to several states in the country. In a conversation with the Investing News Network, Richard Carleton, CEO of the Canadian Securities Exchange, said that in 2018 US-based marijuana firms raised C$3 billion.
When it comes to things that investors should consider when selecting the right stock or company, the panelists offered a diverse array of tips.
“If you’re an investor, you want to see sales growth — this is a growth industry,” said Wiggins. “After sales, (you want to see) gross margin, which is the profit after the production of your assets.”
For investors looking south of the border to plant their cannabis investments, Mauff suggested paying close attention to the integrity of the mergers and acquisitions process and to companies’ liquidity.
“Your overhead cannot get ahead,” he said. “When you look at some of these multi-state players, they’re all getting big, but wow are they burning cash and will have contingent liabilities coming down the road.”
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Caution was also a recurring theme at the “Cannabis Investing 101: Choosing the Hottest Companies, Funds and Options” panel on Sunday (June 6).
Alex Blumenstein, co-founder at Leaf Forward; Elliot Johnson, chief investment officer and chief operating officer of Evolve ETFs; and Louis Kyron, editor in chief of CannaInvestor Magazine, all reiterated the value in practicing due diligence when selecting companies and wading through conjecture to get to the facts post-Canadian legalization and pre-American ratification.
Kyron spoke to the intrinsic worth of knowledge and how information is currency within the investment space. However, he said, understanding which data to use is equally important.
“In this industry, there is a lot of information you can find, but a lot of it is misinformation, and like with most things, high-quality information allows you to make informed decisions, whether it’s ethics or investing,” explained Kyron.
Kyron suggested various websites to use as information resources when making decisions, including company websites, exchange-traded fund websites, SEDAR, SEDI and the Canadian Consortium for the Investigation of Cannabinoids website.
Understanding volatility and mitigating risk stand out as key areas of focus for cannabis investors, Johnson pointed out.
Johnson manages the two marijuana funds from his firm, the Evolve Marijuana Fund (TSX:SEED) and the Evolve US Marijuana ETF (NEO:USMJ).
“There’s no magic to it,” Johnson told the audience. “It’s a lot of work. You are going to look at a lot of companies. You might spend an hour or two on research and say, ‘Well, I still don’t really understand what’s going on.’ And maybe that’s a sign that you should move on and look at another opportunity instead.”
The ETF executive said sometimes trusting intuition may be an investor’s best bet when it comes to trying to decipher which stock is a winner and which is a dud.
“Trust yourself to be smart enough to figure things out and realize that public companies, along with investment funds, are required by regulation to report what they are doing in plain language to the investing public, and you need to make sure that’s what you are seeing when you are reading things,” said Johnson.
He also encouraged investors to be diverse in their cannabis stock selections. The biggest mistake he sees cannabis investors making is not investing broadly and instead taking on single-company risk.
“They want to find that C$0.14 stock that goes to a C$1 or C$10, but they forget that C$0.14 stock can also go to zero, or C$0.10, and that’s a much different experience.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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In a presentation at the show, Lift Chief Revenue Officer Jon Kamin and EY Strategic Growth and Risk Leader Ashley Chiu explained that the legalization of edibles is slated to be prolific and widespread.
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Chiu said the study projects the entry of 1.5 million new consumers as Canadians gain the option to buy these alternative products.
The Canadian government is set to deliver legislation on the sale of edible products on or before October 17. However, it remains to be seen if actual sales will happen before the end of the year.
“One and a half million consumers are waiting for edibles to arrive,” the researcher said. She and Kamin see the introduction of edibles as a crucial step in advancing the cannabis narrative.
“Edibles will bring down the barriers of consumption,” Chiu said during her presentation.
During the Lift Cannabis Business Conference, a one day event at the expo, Vivien Azer, managing director for consumer research in the beverages, cannabis and tobacco markets for Cowen (NASDAQ:COWN), predicted that no edibles sales will take place in 2019 in Canada.
Researchers offer new consumer breakdown for edible consumption
To better understand how the market will be divvied up once edibles begin selling, Kamin and Chiu broke down the consumer sector into two groups: cannabis consumers and non-consumers.
They further broke down consumers into four categories: canna-savvy, canna-casual, canna-curious and the unconvinced.
Most people believe that the canna-savvy, people who are well versed in existing products and most likely used them before the first round of legalization last October, are the target group for the entire edibles space, but in actuality they are not.
The canna-savvy make up roughly 10 percent of the Canadian adult population, a percentage that is much smaller than what will be needed to help companies grow and appease shareholders.
Kamin added that the unconvinced are likely to never change their minds, and probably even opposed legalization in the first place. They are essentially pointless to the market.
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The canna-curious, people who have never used cannabis but are interested, make up a much larger group of potential customers and are the people edibles companies need to be targeting, the researchers said.
Canna-curious consumers comprise 23 percent of the Canadian adult segment and are likely to try novel cannabidiol products, topical treatments and edibles.
This provides a unique opportunity for growers, retailers and marijuana store employees to reach an untapped market through education and information.
Cannabis specialists working in stores will guide curious and new consumers
The panelists explained that four out of 10 cannabis store employees said they would recommend a particular brand of product based on meetings with producers to understand their products’ aims.
The average canna-curious consumer is unaware of what types of products are available or what products they may want. Kamin said that as many as 70 percent of current dispensary visitors have no idea what they are going to purchase before entering a store.
Store employees, known as “budtenders,” are guaranteed to play a crucial role in the legal edibles market since the majority of people in the canna-curious consumer group will enter a dispensary with little to no knowledge of what they want to buy.
Data collected by EY and Lift on the top three questions asked of budtenders shows that 87 percent were asked about the difference between sativa, indica and hybrid.
Seventy-nine percent of the time, they were asked about the specific effects of an item and for product recommendations, including questions such as which strain will help induce sleep and which product aids in relaxation.
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While the canna-savvy and the canna-casual — the two groups most comfortable and familiar with cannabis consumption — rely on preference, history and word of mouth, the canna-curious are more likely to trust a healthcare professional’s word when it comes to which products, strains and delivery methods to choose.
In fact, the report found that almost half of the canna-curious say recommendations from healthcare practitioners are very important to them.
These new users are also less likely to purchase online, opting for a face-to-face encounter.
Access to good, relevant information will be key in getting the canna-curious to convert to canna-casual or even canna-savvy, the researchers said.
Chiu and Kamin added that getting the work done ahead of October legalization is also paramount to ensuring that the curious user does not have a negative experience that puts them off cannabis use entirely.
“If we’re able to target (the 1.5 million new consumers) and provide the right amount of education to them, and make it specific to that consumer segment, I think it’s going to be a lot more effective than (broad) marketing techniques,” Chiu said.
Chiu told the Investing News Network the full report will be publicly released in the coming weeks.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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At the Collision Conference in Toronto, the Investing News Network sat down with Sherer, who is president of Americans for Safe Access (ASA), president and co-founder of the International Cannabis and Cannabinoids Institute (ICCI) and co-founder of Dioscorides Global Holdings (DGH).
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She discussed the long path to medical cannabis legalization in America, how the prevalence of recreational marijuana has affected her advocacy work and her work at DGH, a private equity firm.
Correcting medical cannabis misconceptions
In 2002, Sherer founded the ASA, the largest national organization of patients, medical professionals, scientists and citizens promoting safe and legal access to cannabis for therapeutic use and research.
Her work at ASA led to her co-founding the ICCI in 2015. The Czech Republic-based center ensures that medical cannabis products are effective, safe and consistent.
After spending two decades advocating for medical cannabis, Sherer has seen and heard a lot, but she noted that getting the general public to view therapeutic marijuana as a medical need and not a party drug has been one of the main challenges.
“The biggest misconception about medical cannabis is that the use makes you just feel better — not necessarily makes you better,” explained Sherer. “I think a lot of people think about medical cannabis as an option for a last resort. (If) nothing else is working, maybe doctors will turn to medical cannabis. I think often people look at medical cannabis users as people just feeling better, but not getting better.”
For Sherer, who uses medical cannabis to treat multifocal dystonia and torticollis, breaking down the false information, misconceptions and stigma remains paramount.
“What I’m seeing in my own personal use of medical cannabis and also as a patient advocate, we know that people aren’t just feeling better, but they’re getting better,” she said.
Separating medical and recreational cannabis
When it comes to recreational marijuana, the longtime advocate has mixed feelings. While working to create universal access, she has seen valuable research and development dollars that could advance the case for medical marijuana invested in other niche areas that she views as less important.
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“On one side, it creates an opportunity for access for a patient who couldn’t convince their doctor to write a recommendation to help them with access,” said Sherer.
But she thinks a clear definition between fun weekend use and the management of chronic conditions needs to be implemented.
“What patients want and need from the plant is very different than somebody that may just want to enjoy a concert on a weekend. I’ve seen the investment in research and development move away from moving medical cannabis into something that looks more familiar to doctors and patients as a medicine (toward) trying to get rid of the flavor of cannabis in a soft drink or how to get as high as possible.”
Sherer even jokingly noted that renaming cannabis may help to reduce some of the stigma, pointing to the commercial success of cannabidiol (CBD) products.
“When I started ASA in 2002, the first thing I said is, ‘Please come up with a new name for cannabis.’ I think in that way it’s made it easier for maybe soccer moms to try CBD, and maybe that opens their mind to thinking about other cannabis products,” she said.
“My fear is that, because it’s not a very regulated market, there’s a lot of fraud or products that actually have no CBD in them. There’s a lot of product safety issues in that field that may have the opposite effect. Maybe someone tries one of these products, it says it’s CBD (and) they have an adverse reaction to the contaminants, or maybe they don’t have any reaction because there’s no CBD in it. In their minds, they just close their minds to actually trying other medical cannabis products in the future.”
Research and development still paramount
That is where research and medical studies come into play. Much of the work that the ICCI is doing internationally is focused on implementing standardization, regulation and oversight.
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Meanwhile, DGC, a private equity firm that Sherer formed with business partner Ben Bronfman, invests strategically in the medical cannabis sector in order to advance the much-needed research that will help the sector gain widespread acceptance and legalization.
“We’re looking for investments that move medical cannabis towards being a medicine. That means investing in medical cannabis providers,” she said.
One of the companies DGH has invested in is Bedrocan International.
“It’s one of the oldest medical cannabis companies that has been providing standardized products to the Dutch government since 2003. They’re in pharmacies in 19 countries, and we wanted to make sure that their goals, their ethics, their mission have the potential for a global audience and are able to reach patients globally,” said Sherer.
The private equity company was also crucial in the establishment of the ICCI, an international medical cannabis advocacy and research organization.
“Cannabis is a very, very researched plant, but the research hasn’t happened in a way that builds on itself,” said Sherer. “A lot of research that’s happening, it can’t be replicated. We’re investing in the technologies that allow research to happen and allow the global companies that are out there to have a commitment to providing medical cannabis to patients. We’ve created platforms that will save these companies time and money to move into clinical trials right away and to really carry out the intended mission of medical cannabis.”
Due to its relatively new legal status in a handful of countries around the world, many people believe that the work for medical cannabis advocates is over, when in fact it has become more important.
“Until cannabis is in a pathway that looks more like medicine covered by insurance, our work isn’t done.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.