The stunning success of Canadian cannabis stocks is no secret to sharp investors.
Canada’s fully legal “adult use” marijuana market throws the wild success of Canadian cannabis stocks into sharp relief…
In just the past year, Canopy Growth Corp. (NYSE: CGC) is up over 416%.
Cronos Group Inc. (NASDAQ: CRON) is up over 301% in that same time.
And Tilray Inc. (NASDAQ: TLRY), which only went public in mid-July, is up 577%.
These gains raise an important question: How can you make money on U.S.-based cannabis companies during this historic growth cycle?
After all, at about $8.5 billion, the United States cannabis industry is already larger than the Canadian market is projected to grow by 2022. And that growth isn’t going to slow down anytime soon – Arcview Market Research and BDS Analytics projects that cannabis spending in the United States will reach $23.4 billion by 2022, a 275% increase in just five years.
That’s an extremely conservative estimate, by the way, in that it assumes few, if any, additional states will legalize cannabis for recreational use. But because other states are coming on board and will likely continue to do so, other estimates have the market growing to $50 billion by 2022 – a 42.5% annual growth rate.
Yet there are no fewer than seven Canadian cannabis companies with a market value in excess of $1 billion, compared with only one U.S.-based outfit.
I’m looking for that to change – in a big way.
This will give you an idea of the size of the potential opportunity on our hands…
After Canada, Time for the U.S. Market to Shine
Several high-profile initial public offerings (IPOs) of U.S. cannabis companies will cause all cannabis stocks to increase in price. Even companies not involved in the IPOs will benefit because they will finally get the attention from the big investors who can send stocks soaring.
These companies will all list on Canadian exchanges, the friendliest in the world for cannabis operations… at least until the U.S. government de-schedules cannabis in the near future.
In May, MedMen Enterprises Inc. (CNSX: MMEN) showed a path to listing in Canada with a successful reverse takeover of a dormant Canadian company with a public stock listing. Now more U.S. companies are pursuing this and other options.
At least five significant U.S. players are slated to go public on the Canadian Stock Exchanges (CSE) in the coming months. And they’re taking various routes to get there.
- Acreage Holdings almost surely will be the largest. Formerly called High Street Capital Partners LLC, Acreage is about one year into preparing a public offering of stock. Its name change to something a little more professional was part of its efforts. Acreage also made several acquisitions, beefed up management, brought in former House Speaker John Boehner as a spokesperson, and raised $119 million of capital from private investors. Acreage will go public in a traditional IPO.
- Canadian operators Canopy Growth Corp. (NYSE: CGC) and The Green Organic Dutchman Holdings Ltd. (OTC: TGODF) are taking a different route to the public markets for their planned U.S. operations. Both are spinning off pieces of the respective parent companies and offering existing shareholders the right to buy into the U.S.-based offspring. This is the most interesting way any of these companies is going public because the parent companies are telegraphing their view that the U.S. market is undervalued by limiting the initial capital raising to their existing shareholders, who they want to protect. What’s notable about both of these companies is the stunning success each parent has had in the Canadian markets. After all, Canopy enticing a $3.8 billion investment from Constellation Brands became the most noteworthy mainstream media story in cannabis history, fueling a two-week surge for more than a dozen of the industry’s biggest stocks. And at $115 million, TGOD’s IPO raised more money than any public offering before it. And that was all via retail investors, without the institutional markets.
- One Colorado-based company with significant CBD and hemp holdings as well as a lofty endorsement from a medical celebrity will also go the traditional IPO route.
- Two major dispensaries in the western United States, including one of the first legal operations in the world and another with rights to market the brand of one of cannabis’ most famed advocates, are planning on going public via the reverse takeover route. This will give them more liquidity than prior companies that tended to stay on the TSX Venture Exchange, a sort of slightly more formal version of the U.S. over-the-counter market. Soon after their listings, each will be issuing more shares to raise capital for acquisitions. You can count on that.
These Cannabis IPOs will be Unlike Any We’ve Seen Before
Legal weed is a unique industry.
In most industries, even the largest and most high-profile IPOs – e.g., Dropbox Inc. (Nasdaq: DBX) or Spotify Technology SA (NYSE: SPOT) – aren’t critical to any company except the one doing the IPO. For instance, Box Inc. (NYSE: BOX) doesn’t much care whether Dropbox is public or not. And investors looking to put a value on Box don’t need Dropbox – they’ve dozens of companies to which they can compare Box.
Cannabis is different for two reasons: First, cannabis is such a new industry, and it’s so different from the closest “similar” industries. Even when an economy-shaping company like Microsoft Corp. (Nasdaq: MSFT) did its IPO, there were other computer companies in the public markets. Because of the explosive growth coming to the industry, cannabis is without comparison.
Every IPO essentially “resets” the values in the cannabis industry.
Second, cannabis stocks have historically been underfollowed. IPOs will change that. Because of the unusual U.S. regulatory scheme surrounding cannabis, IPOs have historically been unavailable to cannabis companies. This left “reverse mergers” into penny stocks as companies’ primary option.
Now, not all penny stocks nor all IPOs are created equal. And I’m going to be tracking all of them closely. So stay tuned… because I’ll be back to teach you the all-important difference between a potential winner and a glorified scam.
Either way, a wave of U.S. companies going public on Canadian exchanges will draw new attention to the sector.
The combination of these factors will be explosive for existing U.S. cannabis stocks.
And when mainstream investors start looking at U.S. cannabis stocks, they’re going to find that no industry has grown as fast… not PCs, not the Internet, not automobiles back in the 1900s.
When conventional investors get a sense of the possibilities before them, the IPOs will soar. That’s especially true of institutional investors, who are frothing at the mouth to put enormous sums of money into growth opportunities.
Whatever the method, the IPOs of U.S.-based companies represent a watershed trend on the horizon. And it will benefit all of the companies and investors in U.S. operations.
You can take that to the bank… because that’s exactly what happened in Canada. At the beginning of Canadian medical marijuana usage, companies usually listed on the TSX Venture Exchange, a (slightly) more formal version of the U.S. over-the-counter market.
And we all saw how profitably that worked out.
28 responses to “The U.S. Cannabis IPO Wave Will Be a Massive Payday”
October 21 2018