It’s coming. The single biggest event for cannabis investors is almost here.
On Oct. 17, Canada will become the first major country to legalize cannabis for all uses, from medicinal to recreational. And if you think recent action in pot stocks was big, just wait as this tsunami crashes against the shore.
Investors rightly wonder if it’s too late to jump on this train, but Money Morning Director of Cannabis Investing Research Greg Miller says the best is yet to come.
Not every pot stock saw huge gains this year, and despite huge rallies by some of the larger stocks, such as Canopy Growth Corp. (NYSE: CGC), pot stocks on average have been rather poor performers in recent weeks.
There are few very large, well-capitalized companies with big cash reserves in this new, highly competitive industry. That means, according to Miller, the industry is ripe for rapid consolidation. Big companies will scoop up small companies and pay above-market prices for the privilege. Their combined operations will find synergies to bring even higher margins and higher stock prices.
Companies with unique niches in the sector, such as distributors or high-end product makers, will be very attractive to current leaders. And those leaders will be very attractive to shareholders of the niche players for their market muscle and large war chests of deployable cash.
Canada’s pot market is in the $10 billion area, and that is a lot of revenue for such a young industry. There will be plenty of business to go around once the legal issues fade away next week.
And while Oct. 17 is the biggest catalyst for marijuana stocks to date, there are more catalysts coming in the near future…
Even Bigger Catalysts Ahead for Marijuana Stocks
While all eyes are on Canada, the unlocking of the U.S. market will be much more important. The industry north of the border is further along in development than its U.S. counterparts, and that means the southerners have a lot of catching up to do.
As legislative waves wash from state to state and many of the rules and stigmas at the Federal level fade, business in the United States prepares for the inevitable nationwide move to full legalization.
From deals between pot stocks to acquisitions by drug, food, and beverage companies, there is a lot of pent-up demand. Even “all-American” company Coca Cola Co. (NYSE: KO) is kicking the tires in the cannabis-infused beverage area.
Walmart Inc. (NYSE: WMT) Canadian division announced this week that it’s exploring the possibility of carrying cannabis products for sale. It’s the first major retailer making headlines in the sector, and it could be a great move to take advantage of the soon-to-explode market.
And these giants are taking interest despite the continued mixed messages given off by the U.S. government. From rumors of visa bans for cannabis workers, which are bad, to the Medical Cannabis Research Act, which is good and already passed the House Judicial committee, it is hard for companies to navigate.
But the greater the barrier, the bigger the breakout will be when it finally happens. Just look at GW Pharmaceuticals Plc.’s (NASDAQ: GWPH) performance after the Drug Enforcement Administration (DEA) moved to put the company’s cannabidiol-derived drug Epidiolex into a Schedule 5 listing. This would be the first CBD drug to achieve that status.
So, don’t worry that some cannabis stocks have seen nice run-ups this year. That’s what they said about Alphabet Inc. (NASDAQ: GOOGL) a few weeks after its initial public offering as Google, back in 2004 at $85.00 per share. The stock never looked back and now trades at $1145.17 per share – even after a 100% stock dividend in 2014.
The point is that the beginning of trends can be volatile and bumpy. However, when the trend is as big and strong as the cannabis wave, long-term gains will make recent run-ups look small by comparison.
Source: Money Morning