Cannabis, marijuana, weed, pot, or a hemp plant! Whatever the name you call it, it is a beautiful gift to us by nature. People in the past used it as a drug to cure many health-related problems like nausea, inflammation, depression, and anxiety. Over time, it has been used for recreational purposes as well as for medicinal use. As more experts dig into finding the benefits of marijuana, we have come to know the outstanding benefits of marijuana for our health and beauty.
All the findings have left many business opportunities for the business tycoon & investors. Today we have seen that cannabis has become a growing industry. In this article, you will get to know how cannabis has become the center of attention nowadays, how cannabis industries are emerging in the US day by day, how it is performing in the stock market, which cannabis stocks are best buys in 2021, and what are the strengths, weaknesses, opportunities, and threats in cannabis industry.
A brief history of marijuana:
Marijuana cultivation started from central Asia, Africa, Europe, and then in America. At that time, hemp was solely used to produce fiber, rope, paper sails, and its seeds were widely used as food for the animals. A decade ago, hemp was illegal because most people considered it similar to heroin and tobacco. But after extensive research on marijuana, its uses, and side effects, it has been identified that marijuana is much safer than other drugs like tobacco or alcohol and has many medicinal benefits.
In the US, cannabis has been cultivated by early colonists for the production of rope and textile only. In the 20th century, marijuana was illegal throughout the country under federal law. Later on, many American states issued their regulations about cannabis and made it legal for medicinal and recreational use. But now, not even marijuana production has become legal in many states of America; it has become an industry. Many companies are working on cannabis; they have their cannabis farms and cannabis retail outlets and are listed on the stock exchange as public companies with proper infrastructure.
There are three segments of the cannabis industry:
- Marijuana grower and retailer
- Ancillary provider
- Biotech companies
The legal status of marijuana in 11 states of the US and overall Canada has given an opportunity to many startups. More than 500 cannabis companies are operating in the world after cannabis legalization. These companies are either the direct producer of cannabis products or engaged in the sale and distribution, research, and development of marijuana.
Over time as more people are encouraging the legal status of marijuana use, new and existing businesses are jumping into the cannabis industry. There are many cannabis companies listed on the stock exchange to enhance capital for their business growth. Nonetheless, many investors have sought potential in the cannabis business and are willing to invest in this industry.
How the cannabis industry is performing in the stock market:
Timothy Seymour, founder of Seymour Asset Management in New York and portfolio manager of Amplify Seymour Cannabis ETF said cannabis stock prices dipped in the past few months just like the gaming, tech, and electrical vehicle sector resulted from Covid19. The cannabis industry’s future is healthy as the stock market experiences a notable investor trend in cannabis stocks during the last quarter. The stock market reports increased 10% to 15% growth in cannabis companies due to inward capital flow and increased production.
Must buy cannabis stocks 2021:
With the legalization of weed use, traditional stock markets have started to add companies from the marijuana industry. Investors have a great chance to diversify their portfolio by engaging in cannabis stock until August, says the co-founder of MarijuanaStocks.com and head trader at True Trading Group, Jason Spatafora.
Below is the list of cannabis stocks playing well in the market and can give a potential business to investors this year. Spatafora said:
Curaleaf is a cannabis company based in Wakefield, Massachusetts. Curaleaf Company currently operates in 23 states; it has 106 dispensaries, 30 processing Sites, and 23 cultivation farms. According to Curaleaf, the company claims to earn more than 170% first-quarter revenue compared to last year. It reports an increase of 213% in adjusted earnings before interest, amortization, depreciation, and taxes compared to the previous year.Curaleaf is the first highest revenue earner in the industry.
Timothy Seymour said the company is establishing its status as top-line growth, and we are confident that Curaleaf will take operational leverage from its 23 states’ footprints till 2022. In addition to it, Curaleaf is planning to enhance its structure till 2022 by adding cultivation farms in Colorado and increasing the no. of operating sites in more states to double its business. During the downdraft of March and April, many cannabis stocks held a 200-day moving average, and now they are challenging the 50-day moving average, Seymour says. He also speculated that the market states are in cannabis favor, and the volume of the stock is very light in the market, and soon the change is happening.
Green Thumb Industries:
Chicago-based Cannabis Company that operates in 12 states is Green Thumb Industries. The company claims a $194.4 million increase in revenue in the 1st quarter, a 90% yearly increase. The company experienced this increase in revenue due to increased demand in the US for marijuana products during the pandemic, say the experts.
The CEO and founder of the company Ben Kovler said it is not difficult to analyze the future trend of cannabis because American consumers want more weed to consume. Green Thumb Industries reported $10.4 million in its quarterly net income, compared to a net loss of $4.2 million last year. The company also claims to generate $40 million positive cash flow for the fifth consecutive quarter. GTI has become the second-highest revenue earner in the industry. With 97 retail outlets, 13 production facilities in 12 states, the company is generating most of its revenue from the Pennsylvania, Nevada, and Illinois markets. It has been planning to open new production lines in New York and expanding in other states too. Spatafora says investors must include tier 1 stocks into their portfolios like Curaleaf, Green Thumb, and Trulieve; these stocks will pay off in the longer run.
Chicago-based Cresco lab is a cannabis operator company. Its infrastructure is active in 10 states with 44 retail outlets, 18 production sites, and 32 dispensaries in different states. The company claims an increase of 168.8% ($178.4Million) per year in their first-quarter revenue compared to last year. Cash in hand and cash equivalent was $255.5 million during March. Cresco lab is growing fast in all markets. Cresco is experiencing a year-on-year increase in its wholesale revenue by 150.8% to $95.6 Million. Revenue has increased by 193.2% to $82.8 million. Co-Founder and CEO of Cresco Labs Charles Bachtell said the company plans to expand and accelerate its growth by diverging its initiatives, including M&A and organic expansions that will help the company grow in the coming quarters. He also added that the company resumes its pending growth initiative and invests in other operating platforms to gear up its success in other markets this year.
Trulieve Cannabis Corporation:
Trulieve Cannabis Corporation is operating in Florida, Connecticut, California, Massachusetts, and Pennsylvania. It has 2 million square feet of cultivation area covered in Florida. It is the first and leading medical cannabis company. With more than 550 SKUs’s the company is adding more new and exciting products to its business. During May, the company experienced an increase of $30.1 million in its net income and 15% to its quarter-over-quarter revenue to $193.8 Million. Trulieve Cannabis Corporation acquired an Arizona-based multistate operator Harvest Health & Recreation, in May to expand its business. The company is focusing on its strategy to increase its footprint and looking forward to more expansion opportunities, says CEO Kim Rivers. As more and more states and political factors approve the use of medical and recreational cannabis legal, we are working to accelerate our company growth.
TerrAscend is based in New York and Toronto and a leading North American cannabis manufacturer. TerrAscend Corporation is also operating in Canada with a license. TerrAscend Corporation claims a 106% year-on-year increase in net sales in the first quarter to $53.4 million. The company’s cash in hand increased to $234 million, and EBITDA rose to $22.6M in the first quarter of 2021, which was $3.7M in the 1st quarter of last year. Seymour says it will be a good move for 420 investors to add the company to their portfolio because of its great US expansion in Pennsylvania. The company has accelerated growth during the 12 months through February. It is focusing on increasing its footprint in Maryland, New Jersey, and California. The company’s Canadian setup concentrates on producing cannabinoid products for medical and recreational use and has launched more than 40 product SKUs in the market.
Ascend Wellness Holdings:
Another multistate cannabis company performing well is Ascend Wellness Holdings. The company is operating in Massachusetts, Illinois, Ohio, Michigan, and New Jersey. Ascend reported a year-on-year increase in revenue of 193%, i.e., $66.1M in the 1st quarter of 2021, with a net loss of $48.2M. When Ascend announced the IPO, the experts said it was “the most anticipated IPO of the year,” it raised $86.4 million from the initial public offering. The company strategy is not to expand but strengthen its presence in the limited states, senior equity analyst at Ambria Capital Aaron Raub says the company wants to be a responsible manciple of capital. He left a note to future investors of Ascend that the company’s EBITDA and GP are lower than their competitors because an expenditure company acquired a building for their operations, and over time the company will have higher margins in 2021.
How Technology Is Transforming the Cannabis Industry
Legalizing weed in many countries has opened up technological use in the cannabis industry for efficient and effective performance in the market. Here are the reasons how the technology is transforming the cannabis industry:
Due to E-commerce technology, stoners can get their weed products with just one click to their doorstep. It also enables business owners to expand their business over the internet to other countries.
Efficient Growing Lights
Cannabis growers face an electricity issue in growing indoor plants. Thanks to LED technology that helped the weed growers in the indoor cannabis growing process at a large scale.
Although LED technology isn’t cost-efficient, it will improve in the coming year.
The biosynthesis method became an effortless, time-efficient, and cost-effective way to extract CBD, THC, and other useful chemical compounds from the raw cannabis plant.
Consumers in this century need and encourage businesses to produce personalized products according to their needs and wants. Technological advancements enable firms to produce personalized cannabis products that suit each consumer’s physiology.
The chemical nature of CBD is oil that isn’t water-soluble. Thanks to Nano encapsulation technology which transforms the complex CBD oil into water-soluble. We can now add it to beverages easily.
SWOT Analysis of Cannabis Industry:
- High barriers to entry in the industry, only big tycoons can enter with business experience and get licenses from the government.
- The competition is limited as few business giants are working on cannabis.
- The cannabis industry has high gross margins.
- The cannabis industry will introduce thousands of jobs.
- Increased chances to sell and diversify business through ecommerce.
- Lower risk to start a business because the cannabis market is proliferating.
- Little startup costs required can increase competition in the future.
- Many states still don’t want to approve cannabis as legal.
- High transportation cost from cultivation farms to manufacturing facilities.
- Fear in public about the health benefits of cannabis is still questionable.
- The cannabis industry still needs more startups.
- The growth rate in cannabis is very high.
- Opportunity to expand sales in the international market due to technological advancement and globalization of business.
- Government can now collect regulated tax on cannabis businesses.
- Chances to open new stores in different localities.
- Changes in government laws can impact the whole industry badly.
- The insurance costs are consistently increasing.
- The products cost increasing due to government tax imposed.
- Existing businesses with larger customer bases can launch cannabis products.