Future Leaders Of The Green Gold Rush

September 19, 2017 - By: Baystreet Staff


The U.S. marijuana market is forecast to reach $25 billion by 2020, with recreational use currently legalized in only two states, while the Canadian pot market forecast to be worth about $8 billion, and recreational use is expected to be legalized countrywide in less than a year.

Some think $25 billion is an understatement: Cowen and Company investment bank analysts see it climbing to $50 billion by 2026—in the U.S. alone, driving by a legalization wave.

Then we have Canada, where pot will be legalized federally, not state-by-state. Medical marijuana is already federally legalized, and in line with a government bill, it should be legalized for recreational use by July next year. This could open the flood gates for producers whose stocks are already soaring to amazing heights.

The launch of the first marijuana exchange-traded fund (ETF) in Canada took place in the first week of April, giving us diverse exposure to this tantalizing sector. The Horizons Medical Marijuana Life Sciences ETF (TSX:HMMJ) launched on the Toronto Stock Exchange with 11 Canadian-listed stocks and four U.S.-listed stocks.

This is hands down the biggest bull market of the twenty-first century, leading pundits to refer to it as the ‘Green Gold Rush’, but gaining exposure to it as an investor can be a bit tricky. While there are a number of small-cap Canadian growers whose stocks have shot up this year, there’s also less-risky exposure in the form of giant pharmas pursuing cannabinoid drugs, pick and shovel companies who are the backbone of the multi-billion-dollar industry, or even more uniquely—the first pot ‘streaming’ company in this lucrative evolution.

Here are 5 stocks we think are worth watching closely in the immediate future:

#1 Sanofi (NYSE:NYS)

If you’re wondering why big pharma isn’t cashing in on the medical marijuana bonzana, it’s because they are biding their time and hedging their bets. They’re sitting on the sidelines right now as opposed to dropping billions to re-invent wheel. They are letting the ambitious small-caps spend all the cash with development and clinical trials. Once it’s all across the finish line, they will swoop in and buy them up. They won’t compete with them. They will own them—eventually, so there’s no need to dabble in this until it’s all solid. For now though, big pharma is bent on blocking progress in terms of legalization of recreational marijuana, but this is smoke and mirrors—they’re just buying time, with some working on synthetic strains of marijuana.

Given the momentum particularly in Canada right now, we think it’s time to start looking at a couple of the biggest pharma companies who will likely benefit from all the small-cap breakthroughs in this segment.

So we start with France-based Sanofi, which is currently trading as a $123.99-billion market cap company. Since its IPO in July 2002, Sanofi’s performance year to date is 8.41 percent. The company has seen EPS growth of 1.40 percent for the last year, and performance of 10.19 percent for the same period.

The biggest growth drivers will likely be Dupixent—a powerful new drug for eczema--which is expected to hit sales of US$4.3 billion by 2022, over half of this in the U.S. Dupixent is a major drug blockbuster, and it won FDA approval on 28 March. This is a huge catalyst that sets up Sanofi for a brilliant year.

Another major catalyst comes with the biotech drug dupilumab for treating severe asthma. This drug, by Sanofi and Regeneron, which saw a release of clinical trial data last week. This is essentially the same drug as Dupixent. Under the name Dupixent, the approved drug is for atopic dermatitis. But its dual use, under the name dupilumab, has not met its two primary endpoints in a late-stage Phase III clinical study. This is huge, because this is a multi-billion-dollar market, and will challenge GlaxoSmithKline, the leader in this field.

#2 Cannabis Wheaton (TSX:CBW.V; OTC:KWFLF),

This is the most unique of the bunch because it’s doing what Silver Wheaton has done for the mining industry, and—arguably—what Netflix has done for movies and TV series: It’s streaming pot.

Not only is it a novel idea, it’s also led by the biggest pioneering names in the industry and is backed by heavy-weight politicians, both liberal and conservative.

Cannabis Wheaton is jumping into a huge market for which supply is already struggling to meet demand—and we haven’t even gotten to Canadian legalization for recreational use next summer.

When we say that CBW is ‘streaming’ pot, we mean that it’s offering a lifeline to new and existing growers who need financing to get off the ground fast and meet demand that is expected to explode by July 2018. The fast grow strategy has CBW stepping in with a unique royalty business model that is entirely new to this market. The highly attractive upside here is that this model removes the risks associated with putting all your money into a single-crop producer.

Cannabis Wheaton has already lined up 15 partners, with 17 facilities—for 1.4 million effective square feet of growing acreage. In return, they get minority equity interests and a portion of the pot produced. The company is a catalyst for change in this expected $8-billion market that is gearing up for game-changing legalization in less than a year.

They’ve also got 39 solid clinic relationships, and this is growing fast, with access to over 30,000 registered medical marijuana patients.

It’s a win-win: Investors get less risky and diversified exposure to this huge market, while producers get more avenues for financing and growth.

This is the evolution of finance for the traditional licensed cannabis producer—and Cannabis Wheaton is the only company on this track.

The most recent catalyst was CBW’s $15-million purchase of common shares of ABcann Global Corporation in August. This is just an initial investment in ABcann as part of a larger investment to fund a major expansion at its second production facility. The deal will add another 50,000 square feet of pot production to ABcann’s portfolio. Next year, Cannabis Wheaton intends to invest another $15 million in ABcann, at 2x the trading price.

Cannabis Wheaton gets 50 percent of the production from ABcann’s 50,000 square feet of new cultivation for almost 100 years.

This is a business and model to watch very closely.

#3 Scotts Miracle-Gro (NYSE:SMG)

This is a ‘pick and shovel’ company for the marijuana industry, and the industry is going to need a lot of them, making them a huge market opportunity. SMG is presently trading as a $5.52-billion market cap company. SMG markets a lot of products, including the Miracle-Gro brand, Scotts grass seeks, pest deterrent Ortho, and weed killer Roundup, among others. But they’ve also been hungrily eyeing the marijuana market and they are manufacturing a nicely growing collection of products for use in hydroponic growing, which is a huge market for pot.

If you aren’t familiar yet with hydroponics, as an investor we recommend a quick education. Hydroponics is the process of growing plants without soil. SMG has a wholly owned subsidiary, Hawthorne Gardening Company, that is focus on hydroponics as 10 percent of its total sales —for now—and a tantalizing growth rate on that figure. Year-over-year, this segment has organically grown 20 percent--at double digits. But Scotts is also actively acquiring companies in this space.

What SMG offers, then, is a way to gain unique exposure to the marijuana industry, without going all out for direct pot stocks.

#4 Pfizer (NYSE:PFE)

This drug maker offers sizzling dividends, and its growth picture looks very solid, for the first time in a long time. Pfizer’s two segments—innovative health and essential health—generated $52.8 billion in revenue last year, with net income of $7.2 billion. Its operating cash flow was nearly $16 billion. While its legacy products are experiencing declining sales, its new products are now very promising, and this is the year that we’ll really see growth, particularly with two new cancer drugs and an autoimmune disease drug.

What is most likely Pfizer’s most attractive aspect is its financial flexibility, which puts it ahead of its peers. The company’s debt-to-equity ratio wasn’t great for Q1, but keep in mind, this was because of a series of acquisitions (Anacor Pharmaceuticals, Hospira, Medivation).

More than any other, this company is set up with cash that will allow it to take advantage of any really good acquisition opportunities. Even amid still competition and tough patent battles, Pfizer is still impressing with increases in revenues year-on-year.

But investors right now are clearly watching how things played for another company’s drug—Allergan’s (NYSE:AGN) Restatis, a blockbuster dry-eye disease drug. All the patents are now owned by the Saint Regis Mohawk Tribe, which will get millions of dollars upfront, along with annual royalties. Allergen will get the exclusive rights to market the drug. What it means is that generic threats to the drug will be hard to make. The argument is that Pfizer, which is also facing challenges to its patent exclusivity for drug Prevnar 13, may seek to copy Allergan’s brilliant move here.

#5 Canopy Growth Corp. (TSE:WEED) (OTCMKTS:TWMJF)

Currently trading with a market cap of CAD$1.66 billion, this company is considered Canada’s first ‘cannabis unicorn’, and it’s been on a bull run for a while.

This company is ripe for the legalization of marijuana for recreational use. It’s just announced the licensing of new facilities at its flagship project at Smiths Falls, with expanded growing capabilities. It’s also just been granted approval for more expansion. This is also the first cannabis company to be included in the new S&P/TSX Composite Index.

Shares in Canopy Growth jumped 9 percent to $10.84 on 27 March, just when the Canadian government clarified that it intended to legalize recreational marijuana in time for Canada Day celebrations in July next year.

Overall, Canopy has seen its stock rise more than 386 percent in the past year, making it a real ‘unicorn’ (the favored term for start-ups hitting the billion-dollar mark).

Take a look at Canada’s pot stocks on the TSX:

Other companies to watch closely:

Aphria (TSX:APH) is a Canada-based cannabis company which focuses on the production, sales, and distribution of legal marijuana. The company’s business model focuses primarily on online sales, which is perfect for its patients. A simple point and click and the medication will arrive at the patient’s in no time.

Aphria’s products are developed to treat to a variety of different patients and symptoms. The company offers several smoke free medications for those who are unable to consume the products in that manner. Aphria also produces low-THC products for patients who are more sensitive to marijuana’s psychoactive properties.

Aphria’s large market appeal make the company an ideal choice for investors, as the company is sure to retain, as well as grow their customer base over time.

MedReleaf Corp (TSE:LEAF): As a licensed producer of cannabis-based pharmaceutical products, MedReleaf Corp has a head start on the coming boom in Canada. Early July has seen a bounce in the stock price, and investors may look to ride it upward from here. Med Releaf could become Canada’s second biggest medical marijuana company after Canopy Growth Cooperation as many analysts expect the ‘legal weed’ industry to grow 25% on an annual basis over the next 10 years.

MedReleaf has seen its share price fall since June, but has steadied out in recent months and could be poised for gains as the expected legalization of recreational marijuana materializes.

Aurora Cannabis Inc. (TSE:ACB)—another Canadian cannabis giant-in-the-making. Aurora has seen impressive organic growth this year. Investors should keep an eye on Aurora’s Sky project and its European investments while the company vies for no less than 10% market share of the entire Canadian market as that country plans to legalize marijuana for recreational use.

Aurora’s automated $110 million Sky project is poised to become one of the most advanced growing facilities on the planet and should be able to compete with giant growers like Canopy Growth on a cost-per-gram base.

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FORWARD-LOOKING STATEMENT. Statements in this communication which are not purely historical are forward-looking statements and include statements regarding beliefs, plans, intent, predictions or other statements of future tense. Forward looking statements in this article include that new cannabis legalizing legislation will create an $8-billion-dollar industry; that there will likely be a supply shortage; that this industry will be $25 billion annually in the US; that Cannabis Wheaton’s business model reduces risk for investors; the ability to generate revenue or take production through the streaming agreements. Forward-looking information is based on the opinions and estimates of Cannabis Wheaton at the date the information is made, and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Forward looking statements involve known and unknown risks and uncertainties which may not prove to be accurate. Actual results and outcomes may differ materially from what is expressed or forecasted in these forward-looking statements. Matters that may affect the outcome of these forward looking statements include that markets may not materialize as expected; marijuana may not turn out to have as large a market as thought or be as lucrative as thought as a result of competition or other factors; Cannabis Wheaton may not be able to diversify or scale up as thought because of potential lack of capital, lack of facilities, regulatory compliance requirements in Canada or outside of Canada or lack of suitable employees or contacts; partners of Cannabis Wheaton may not be granted licenses or additional capacity under existing licenses for them to grow for the cannabis market; and other risks affecting Cannabis Wheaton in particular and the cannabis industry generally. The forward-looking statements in this document are made as of the date hereof and the Company disclaims any intent or obligation to update such forward-looking statements except as required by applicable securities laws.

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PAID ADVERTISEMENT. This communication is a paid advertisement and is not a recommendation to buy or sell securities. Safehaven.com, and their owners, managers, employees, and assigns (collectively “the Company”) has been paid by the profiled company or a third party to disseminate this communication. In this case the Company has been paid by Cannabis Wheaton one hundred and fifty four thousand US dollars for this article and certain banner ads. This compensation is a major conflict with our ability to be unbiased, more specifically:

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