While the debate rages on as to whether or not cannabis stocks are a wise investment, various companies are taking their chances and gambling for the potential opportunities of a booming marijuana market. Considering legal, adult-use marijuana goes on sale in Canada this coming October, speculation abounds for the payoff to marijuana stocks investors.
While marijuana remains a DEA Schedule I drug according to the federal United States government, entrepreneurs and cannabis stocks investors are testing the waters for what is believed to be a highly profitable market.
Some believe the DEA schedule for marijuana is unlikely to change as the taxes charged to companies selling what is, essentially, an illegal substance are more profitable than even projected sales for legal marijuana. More detail on this concept is offered in previous article Why Would Congress Avoid Legalizing Marijuana?
There’s more going for the cannabis market than medicinal, dried products. Oversupply of dried flower products have demonstrated pricing issues in states where these sales are legal such as Colorado, Oregon, and Washington. Growers crossing their fingers for legalization and accompanying rising sales require new methods for marijuana use.
Among the legal, more popular options for cannabis use is CBD oil. The buzz for the use of this product to help treat a variety of ailments has only increased over the past year. This market is primarily targeted for those seeking the medicinal properties of marijuana use and, yet, is still in a position to avoid the pricing pressure seen with dried products. CannTrust Holdings (NASDAQOTH:CNTTF) is one growing company planning to adjust its approach to committing a large portion of their yield to this CBD oil market as the company expands.
Marijuana stocks investors are turning their attention to companies open to alternative products ranging from vape cartridges, edibles, and infused-beverages.
While this is an innovative approach, cannabis stocks investors should take note the edibles and infused-drink products will not be legal in Canada even when the fall season of adult-use legal marijuana sales comes to pass; there are amendments within the Cannabis Act which open the discussion for these products within Parliament at a later date during 2019.
However, the alcohol industry which has been subject to a similar process as marijuana legalization, is hopping onboard the green wave with hopes for change on the horizon.
As is perhaps of the fate of all potential vices, once the mystique of elicit behavior has worn off in the face of legalization, sales growth ceases to enjoy the surge of earlier days. Alcohol companies are looking for ways to set themselves apart from the flood of competitors.
Savvy marijuana stocks investors will notice the tricky position in which the alcohol industry finds itself. The potential for legal cannabis just might decrease interest in alcohol and, therefore, injure their already stagnating sales growth. Making mergers with marijuana companies is a bit like saying, “Well, if you can’t beat them, join them,” and cannabis stocks investors will do well to study these collaborations for future market potential.
Companies like Constellation Brands (NYSE:STZ) are among the few producers of alcoholic beverages attempting to think outside the bottle by joining forces with marijuana stock company Canopy Growth Corp. (NYSE:CGC).
Constellation Brands makes the popular beer brand, Corona, as well as other spirits. The company took a 9.9% equity stake in Canopy Growth (a price tag which adds up to approximately $190 million) in addition to acquiring over $150 million in Canopy Growth’s convertible debt. The purpose of this type of merging is to collaborate on new products for markets where cannabis is already legal.
Additionally, Molson Coors Brewing Co. (NYSE:TAP) is taking a similar approach in league with Hydropothecary Corporation (NASDAQOTH:HYYDF). Hydropothecary is not a top-10 producer when it comes to annual production which, perhaps, caused some marijuana investors to scratch their portfolios, puzzled. Still, Hydropothecary has a 200,000 kilogram supply deal with Quebec over a five-year period. Perhaps the beer company felt this fact was convincing enough to choose the underdog company for marijuana-infused product expansion. Considering Molson Coors experienced their worst single day loss in 13 years this past spring, they might be searching for all the help they can get to boost their stock.
The newcomer to marijuana stocks expansion is popular green-bottled light brew company, Heineken (NASDAQOTH:HEINY).
Although Heineken performs well in other parts of the world, Heineken USA had a high single-digit decline in beer volume. Infused-beer products appear to be an opportunity for Heineken to ride the swelling tide of marijuana sales.
Just last month, Heineken introduced a non-alcoholic cannabis drink in select dispensaries within California. Heineken made use of its wholly owned craft-brewing brand, Lagunitas, to launch the new beverage which is meant to taste like beer called Hi-Fi Hops. Time will tell if customers appreciate the new product which can be purchased in two different forms: a 10 mg version containing the chemical which is associated with the “high” sensation of marijuana, tetrahydrocannabinol (THC) or a 5mg hybrid containing equal parts THC and CBD. At $8 per can, this new concoction is a luxury and, yet, distributors cannot keep it on the shelves.
Legalization timeframes for edibles and infused drinks is nowhere set in stone which should provide adequate caution to marijuana stocks investors to assess the risk involved with buying stocks based on innovation alone.
Next year is no guarantee for Canada to legalize more than adult-use marijuana. It could take some time before these new products have the opportunity to make noticeable profit improvements for companies like Constellation Brands, Heineken, and Molson Coors. Additionally, these profit improvements are projected based on an assumption these products will prove popular enough with the public to really make a dent.