More Marijuana Industry Deals, Good For Marijuana Stocks?

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Marijuana stocks is a hot topic these days, and we are not just blowing smoke. The legal marijuana industry is among the fastest-growing industries in North America. ArcView, a cannabis research firm, estimates that the legal marijuana market in North America will have an annul growth of 26% between 2016 and 2021.

However, investment firm Cowen & Co estimates that the legal marijuana market in the United States alone could generate US$50 billion in annual sales by 2026.

Several various reports have estimated that the American legal pot industry will triple or quadruple between 2016 and 2021. This estimated consistent growth of the legal marijuana market has investors excited about marijuana stocks to buy, pushing marijuana stocks’ valuations ever higher.

Canada is scheduled to make marijuana legal across the country later in 2018, generating even more interest in marijuana stocks in the Canadian market.

The situation is slightly different in the United States. Some individual states and the District of Columbia in the United States have legalized marijuana on various levels (whether medical or recreational), but marijuana remains classified as schedule I (entirely illegal, with the high potential of addiction) on the federal level.

Additionally, Attorney General Jeff Sessions essentially declared war on the cannabis industry earlier in 2018, when he rescinded the Cole Memo.

The Cole Memo is a policy memo with rules that states with legalized marijuana must abide by in order to appease the federal government. By removing this memo, which Sessions believed overstepped its bounds, state-level prosecutors are granted the discretion to bring cannabis charges against people or businesses–even in states in which pot is legal.  Thus, the outlook for marijuana stocks in the United States became even more complicated and unclear.

Despite Attorney General Jeff Sessions’ strange and unfounded declarations regarding the safety of marijuana, investors should still consider marijuana stocks. In fact, according to the Washington Post, Sessions’ comments might make legalization in the United States more likely.

Likewise, the legal marijuana market in Canada is going well and the future of marijuana stocks looks bright.

Medical marijuana has been legal in Canada since 2001. When recreational marijuana is legalized, Canada will become the second country in the world to have legalized recreational pot (after Uruguay), and sales of legal week are expected to add $5 billion in annual sales in Canada. This predicted uptick in pot sales as led investors to seek out weed stocks to buy.

The push for legalization in both the United States and Canada has led to a rush of industry deals, further inspiring buyers to research marijuana stocks to invest in.

In Canada, the deals are coming fast and furious in anticipation of 2018’s legalization at the federal level, generating a lot of interest in marijuana stocks.

Aphria (NASDAQOTH:APHQF) has been expanding its growing capacity via a four-phase project that is estimated to run more than $100 million. Expected to be complete in January 2019, Aphria’s expanded area will cover 1 million square feet and yield 100,000 kilograms of cannabis a year.

Other acquisitions have occurred in the Canadian pot market, five impressive marijuana acquisitions have occurred recently.

Aurora Cannabis  (NASDAQOTH:ACBFF) acquired CanniMed Therapeutics for $852 million. Aphria is buying Nuuvera for an impressive $670 million, and buying Broken Coast Cannabis for $185 million. Lastly, Constellation Brands will get a 9.9% stake in Canopy Growth Corp., worth $191 million. These business dealings sparked interest in marijuana stocks in Canada.

MedReleaf, which makes medical marijuana products, is another marijuana stock investors are keeping an eye on.

In May 2017, the company priced its initial public offering at roughly $7 per U.S. share ($9.50 Canadian), raising around $75 million.  MedReleaf was the largest North American marijuana stock IPO of all time, making it a marijuana stock to watch. Notably, though, MedReleaf faces significant competition, especially from Aphria, Aurora Cannabis, and Canopy Growth. This competition could mean great opportunities for people looking to invest in marijuana stocks.

Even with this growing push toward legalization, marijuana stocks, like all stocks, can be risky.

Canada is on track to legalize recreational marijuana, but as we mentioned earlier, the situation in America is more complicated. After Sessions rescinded the Cole memo, investors and supporters of legal weed became a little more apprehensive, and with good reason. And, unlike in Canada, marijuana stocks in the United States also face unique financial concerns.

Because cannabis is a Schedule I substance–classifying its use entirely illegal, prone to abuse, and without recognized medical benefits (contrary to research evidence)–marijuana businesses are unable to take normal corporate income-tax deductions, due to U.S. tax code 280E.

This situation results in profitable marijuana companies to pay an effective tax rate of 70% to 90%, thus impeding their ability to reinvest, expand, and hire.

This can reflect in marijuana stocks’ future, as well as the ways in which investors approach selecting marijuana stocks to buy. Despite this situation, according to the Pew Research Center, 61% of Americans favor legalizing marijuana.

This is a great time to consider investing in marijuana stocks, but, as with all stocks, investors need to do their due diligence and weigh their options when investing.

 

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