The Blooming Cannabis Industry: 2016 in Review

The cannabis market reached incredible highs in 2016 in the US and in Canada. Here's what some analysts had to say.

2016 review

The cannabis sector was one of the hottest commodities in 2016, and it’s not hard to see why.

To get some perspective on how the marijuana sector has fared, putting it simply, it has been slow to take off–until recently. Over the last couple of years, the cannabis market has flourished from almost nothing into a $4 billion industry–in Canada alone–according to the Globe and Mail.

Looking over to the United States, a report by ArcView Market Research projected the cannabis industry to jump over $6.7 billion in 2016, and it’s only expected to increase from there. By 2020, cannabis sales in the US are expected to grow to $21.8 billion.

As such, the Investing News Network (INN) had the chance to speak with Alan Brochstein, cannabis stock analyst at 420 Investor, to see give a cannabis overview for 2016.

“I am glad to see the cannabis market look like it will finish positively for the first time since 2013, ending a brutal bear market from early 2014 to early 2016,”he told INN.

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2016 cannabis overview: voting for legalization in the US

Of course, voting for legalization of recreational marijuana in four US states is no doubt one of the biggest stories to come out of 2016 in the US. California, Massachusetts, Maine and Nevada voted in favor on November 8–US election night–which brings recreational cannabis usage legal to eight states (Colorado, Washington, Oregon and Alaska being the other four).

In that regard, prior to the presidential election, INN spoke with Brochstein about the cannabis rally in the US to get an idea of how the election could impact the industry.

“I’ve been telling my subscribers that we’re going to have a very big rally at the end of the year due to these elections,” he said.  However, at the end of October, Brochstein said he “called the end of the rally,” suggesting that it’s not sustainable and that “the valuations are too high.”

Despite the positive turnout for voting in favor of legalizing marijuana, Brochstein was surprised by what the outcome could mean for the industry.

The Trump election and the uncertainty it brings regarding federal cannabis policy was certainly not expected,” Brochstein said. 

Earlier in November, Denver, Colorado, became the first US city to legalize ‘social’ marijuana use. What that means is consumers will be able to use it in places like bars, restaurants and clubs, Reuters reported. Other states have allegedly authorized similar ideas, but Denver is the first city to put them in place, the publication noted.

On that note, December 15 became the day were recreational marijuana laws came into effect in Massachusetts. Now, consumers can possess and grow unlimited amounts of cannabis in that particular state.

In a separate interview with INN, James Dines, who publishes The Dines Letter, agreed that the US vote to legalize marijuana was a significant impact in 2016.

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“I’ve been watching it for the last few years and the trend was inexorable and more and more people were in favor of legalizing it,” he said.

However, a month following the election, Haaretz reported that Trump’s pick of Jeff Sessions for attorney general has previously made comments that could be detrimental to the legalization of cannabis under a Trump government.

According to the publication, Sessions said, “good people don’t smoke marijuana.” He had also previously made comments that the Ku Klux Klan “were OK until I found out they smoked pot.”

Naturally, those in the cannabis sector are concerned about what a Trump presidency could mean for legalization. In another publication, Ethan Nadelmann, executive director of the Drug Policy Alliance, said “Trump’s appointees so far are a nightmare.”

Although the legalization of marijuana could take a different turn once Trump becomes president, another big headline in the cannabis industry in the US was the New York Stock Exchange’s approval to list a marijuana company on its exchange for the first time.

Positively, a NYSE listing for a cannabis REIT is also something that was a surprise,” Brochstein told us.

As Trump takes office in January, those in the cannabis sector will be watching carefully to see what transpires in an industry that has evolved significantly over the last twelve months.

2016 cannabis overview: Canadian task force on legalization

In Canada, 2016 was a huge milestone for the cannabis industry–particularly later in the year.

On December 13, the Canadian government released its task force, detailing guidelines on the legalization of marijuana. Some key highlights of the guidelines include: consumers to be at least 18 years of age to buy; sales to be regulated at a provincial and territorial level; the promotion and support of pre-clinical and clinical research on cannabis use, and facilitating submissions of cannabis-based products for market authorization; and a limit of four plants per household for the purposes of growing.

Brochstein weighed in again with INN, telling us that the task force report “was not full of surprises.” He noted that it was a deliberative process, but said he fears “investors are putting the cart in front of the horse.”

“It’s very obvious that Canada is going to legalize, but it’s not so clear what that’s going to look like or what the time frame is going to be,” he added. “Any time we get updates like this, I think a lot of people like to spin it positively.”

In that regard, Brochstein said the biggest surprise was the labelling requirements.

“It appears that they’re very concerned about making the products look appealing,” he said.”It’s uncertain what the labelling limitations are going to mean to the industry.”

However–although the announcement came in 2016 for legalization in 2017–Brochstein said to not expect sales of marijuana until 2018.

“Between now and then, there’s not a lot for investors to go on except for what’s going on in the medical market, which remains pretty positive.”

While the task force report is unquestionably the biggest news to come out of the industry, at least in Canada, there were a number of other significant stories as well. In October, Shoppers Drug Mart officially applied to distribute medical cannabis. London Drugs has expressed its interest in selling, although it has yet to formerly apply for its distribution.

To that end, in October, it was announced that Snoop Dogg had partnered with Canopy Growth (TSX:CGC) with a line of marijuana products for the domestic market. Of note, Canopy Growth is the first the first pot company with a market capitalization above $1 billion.

Up and coming marijuana company, Aurora Cannabis (TSXV:ACB) joined the TSX Venture Exchange in October. Cam Battley, vice president of Aurora told INN in an interview that since the start of the year, the company’s market capitalization has increased from about $50 million to $750 million.

As it can be seen, 2016 was a significant year for the cannabis industry–in the US and in Canada–leaving plenty to look forward to in 2017 and beyond.

Don’t forget to follow us @INN_Resource for real-time news updates.

Securities Disclosure: I, Jocelyn Aspa, 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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