With worldwide consumer spending on legal cannabis in 2019 expected to climb by 40% to a whopping $18.1 billion, there are plenty of reasons to be excited about investing in marijuana. According to BDS Analytics, $14.4 billion of the $18.1 billion in global sales is expected to come from the U.S. cannabis market where marijuana sales are still federally illegal even though the state-level markets are legal and remain the biggest in the world. American cannabis companies could possibly receive some much needed regulatory relief this year from lawmakers as there is a big push to pass legislation that will provide the industry with better banking laws. US companies would definitely steal the spotlight away from all of the positive attention that Canada received last year after becoming the second nation in the world to legalize marijuana.
The Ultra-Hot Canadian Market May be Cooling Off
Canadian marijuana companies may be in for a rude awakening in 2019 as production shortages force local governments to take a multi-stage approach to issuing coveted retail licenses. The province of Ontario has stated that 25 dispensary licences will be issued in 2019 via lottery and that companies currently licensed to produce marijuana will not be eligible to participate. Physical retail locations in Canada’s most populated province will provide customers with the ability to purchase items in person. This is in contrast to the online ordering system that the rest of the country currently uses.
There is plenty of evidence to suggest that the Canadian cannabis market is grossly overvalued and that some companies operating exclusively in Canada may see their stock tumble by 60 percent in 2019. Plenty of experts predicted that marijuana prices would increase over time thereby increasing profits. In reality, marijuana prices are in a steady decline after the initial surge in sales that accompanied nationwide legalization. Ultimately a large percentage of the Canadian marijuana market will be commoditized. Since such a large percentage of the Canadian Marijuana market will be commoditized, marijuana companies will ultimately be based on a price-to-earnings ratio of approximately 15 or less. This will lead to a stark contrast between the ultimate valuation of a marijuana company and the current total valuation of the same company.
Not all of the news coming out Canada is negative, some of the most popular methods for consuming cannabis around the world such as vaping, beverages and edibles will go on sale for the first time in the Great White North. Increasing the variety of retail products being offered legally will open the market up to new customers that will help to provide additional revenue.
Good News for US Companies
One of the biggest obstacles getting in the way of the US cannabis market has been the inability to access the federal banking system. Having this rapidly growing industry operate without access to banking has stifled expansion and has forced companies to operate exclusively in cash. Two promising pieces of legislation have been proposed that will allow the marijuana industry to come out of the shadows and enjoy the benefits of banking.
SAFE Banking Act of 2019 – The “Secure And Fair Enforcement Banking Act of 2019,” more commonly referred to as the “SAFE Banking Act of 2019,” provides banks that do business with the cannabis industry protections from federal interference. Providing the country’s fastest-growing industry protection from federal interference will give cannabis companies the same banking opportunities that are provided to other age-restricted industries such as alcohol and tobacco. A current push is under way to make this very intelligent proposal even stronger by extending the same protections against federal interference to the American stock markets. Bringing an industry projected to reach $20 billion in annual sales into the fold with the same protections and opportunity that other industries enjoy will provide a serious boost to the economy and give marijuana investors the portfolio upgrade that they have been looking for.
STATES Act – The “Strengthening the Tenth Amendment Through Entrusting States,” more commonly referred to as the “STATES Act,” prevents the federal government from interfering with the financial activities of marijuana companies that are operating in jurisdictions that have legalized marijuana use either recreationally or for medical purposes. In addition to opening the marijuana industry to banking, the STATES Act would provide cannabis companies with the ability to directly benefit from tax deductions. Section 280e of the IRS tax code, prohibits deductions for any company that participates in the trafficking controlled substances.
One of the biggest disadvantages to the passing of the STATES Act has less to do with policy and more to do with who co-sponsored this piece of legislation. Democratic Sen. Elizabeth Warren of Massachusetts has been a staunchly outspoken person when it comes to the policies of President Trump. Many industry experts to include Cown analyst, Vivien Azer, believe that the existing animosity between Senator Warren and President Trump will prevent these two from being able to pass this intelligent piece of sensible legislation.
“The extent that Elizabeth Warren is at all presumed to be a candidate in the 2020 election, even just in the Democratic primary, our panel participants were hard-pressed to envision President Trump signing a bill that was co-sponsored by Elizabeth Warren,” Azer said.
Even Better News for Investors
Investors that are looking to make a serious impact will need to pay close attention to companies that operate domestically and internationally. Market Watch Analyst, Nigam Arora believes the key to making millions in marijuana is the international markets, branded products, wellness solutions and marijuana-based treatments and cures.” One of the best positioned marijuana companies poised to make an impression overseas is Player’s Network, who’s subsidiary Green Leaf Farms has partnered with the province of Jujuy, Argentina to develop over 33,000 acres with a significant percentage of the crop being used to produce a vast variety CBD-infused health/wellness and beauty products. Having the full cooperation of the Argentine government eliminates all of the regulatory stipulations that are hindering the American cannabis market from being able to reach its full potential. Moreover, the Green Leaf Farms project in Jujuy, Argentina is located in one of the countr’s eleven tax free zones which means substantially higher profit margins for Green Leaf Farms.