If the state of California were a country, it would have the fifth largest GDP in the world.
Take this kind of spending power and combine it with the recent legalization of recreational cannabis, and it’s fair to say that the Golden State is primed to become the Holy Grail of cannabis opportunities.
But while the market is home to immense potential, this doesn’t mean that the California cannabis business isn’t without its own unique challenges and obstacles to navigate.
Navigating California Cannabis
Today’s infographic comes to us from High Hampton Holdings and it helps set the stage for the boom in California, as well as listing the regulatory hurdles that companies must be prepared to deal with in the jurisdiction.
In the next year, it’s expected that recreational cannabis sales in California will surpass the existing total from the already established medical market.
By 2025, those recreational sales could be $4 billion per year – that’s five times the size of the medical market!
The potential of the California cannabis market may be obvious, but navigating both the state’s notorious regulatory system and tax regime is a clear threat for companies aiming to succeed in the space.
Since legalization, the price of cannabis in California has become an immediate hiccup that has initially angered consumers, reducing expected demand and state revenues.
According to BDS Analytics, the effective sales tax on a gram of cannabis bought in San Jose works out to a hefty 38%. Add this to the higher cost of doing business in the state, and the sticker shock for consumers is real.
After high taxes, companies entering the California market must also navigate the state’s complex rules and regulations about growing, distributing, and selling cannabis.
To give an idea of what this looks like for the average company, here is a brief snapshot of California’s regulatory environment:
- There are three governing bodies for cannabis in the state: California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC)
- There is a dual licensing requirement in the state, in which companies must be licensed both by the state as well as by local authorities
- Companies must get their local license before their state license – and this is complicated: there are 58 counties and 482 incorporated cities, each with their own specific set of rules and requirements
- Currently, many growers do not meet state or local standards
- The supply of zoned, permitted areas for cannabis cultivation are scarce and in high demand
Even further, the rules around cultivating, distributing, and retailing all involve specific and highly-specialized licenses. For example, only those with a full-service distribution license can coordinate required third-party testing, ensure packaging reviews of products, and collect and remit cultivation excise taxes.
Despite the challenges that exist in the California cannabis market, it is still the undisputed jewel in the crown of the global legal cannabis space, offering access to 39 million consumers and large amounts of disposable income at play.
Only companies that can navigate this uncharted territory will be able to take advantage of this lucrative opportunity.
The Dramatic Rise and Fall of Cannabis Company Stocks
The Dramatic Rise and Fall of Cannabis Company Stocks
The unprecedented expansion of cannabis across North America took the investment world by storm, as investors raced to cash in on the “green rush”.
Yet, even as changing regulations unlock new opportunities, it seems as though the cannabis stock bubble has already burst — at least temporarily.
Today’s visualization dives into the roller coaster of cannabis company stock valuations over the past few years, and which companies remain standing in this hazy market.
A Wild Ride for Cannabis Stocks
The North American Marijuana Index tracks the equally-weighted stocks of leading companies operating in the legal cannabis industry in U.S. and Canada. Companies listed on the index must have at least 50% of their business strategy focused on the legal industry, including ancillary operations that support companies and consumers.
At the tail-end of 2017, the promise of upcoming legalization in two immense markets—California state and Canada—had investors all fired up. The index’s low (105.31 on June 27th, 2017) shot up almost three times to 358.93 by January 8th, 2018.
Things took a sharp turn in the second quarter of 2019, as the expectations for cannabis company stocks encountered a harsh reality post-legalization.
|Index||North America||🇺🇸 U.S.||🇨🇦 Canada|
Note: 52-week period data captures Dec 9th 2018-Dec 9th 2019.
What are the reasons behind such a nosedive? Could the cannabis industry still make a comeback in 2020? We look at some opposing perspectives to answer these questions.
So Much For the Green Rush
The cannabis industry is experiencing significant challenges. In the U.S., legal cannabis faces high taxes—come the new year, consumers in California will see an 80% mark-up on their cannabis at checkout, up from 60%.
North of the border, federal legalization led to immense consumer demand for Canadian cannabis—but supply can’t keep up. To make matters worse, retail stores are slow to roll out, which means Canada is feeling the crunch.
Steep prices, and difficulty purchasing products post-legalization, allow the black market to thrive. It’s clear many cannabis companies have taken a big hit as a result.
According to the Marijuana Index, here are the 10 biggest companies in the space now:
|Company||Symbol||Market Cap (US$)||Country|
|Canopy Growth Corp.||NYSE: CGC||$5.6B||🇨🇦 Canada|
|Curaleaf Holdings||CNSX: CURA||$3.67B||🇺🇸 United States|
|GW Pharmaceuticals PLC||NASDAQ: GWPH||$2.98B||🇬🇧 United Kingdom|
|Aurora Cannabis Inc.||TSE: ACB||$2.85B||🇨🇦 Canada|
|Green Thumb Industries Inc.||CNSX: GTII||$2.42B||🇺🇸 United States|
|Cronos Group inc.||TSE: CRON||$1.83B||🇨🇦 Canada|
|Trulieve Cannabis Corp||CNSX: TRUL||$1.91B||🇺🇸 United States|
|Tilray Inc.||NASDAQ: TLRY||$1.46B||🇨🇦 Canada|
|Aphria Inc.||TSE: APHA||$0.96B||🇨🇦 Canada|
|Harvest Health & Recreation Inc.||CNSX: HARV||$0.94B||🇺🇸 United States|
Note: Companies listed on a Canadian index have had their market cap converted from CAD$ to US$. Top 10 companies are based on those listed on the North American Marijuana Index. All values as of Dec 9th, 2019.
Only one company outside of North America—and even the cannabis sector—lands on this list. The UK-based Big Pharma company GW Pharmaceuticals is steadily growing its industry presence, as it currently holds 41 cannabis patents in the U.S. and Canada combined.
Still, even these big players have seen their valuations drop since the industry was at its peak. Unless the aforementioned issues are ironed out, investors may continue to pull their dollars from the cannabis industry.
A psychological shift has taken place from everyone wanting to own (cannabis) to everyone involved now feeling burned. I think many investors are now over it.
—Chris Kerlow, portfolio manager at Richardson GMP
On the flip side, some investors aren’t calling it quits quite yet.
Long-Term Prospects Are High
While cannabis seems plagued with issues, some argue that these are simply short-term growing pains and will be solved as the industry matures.
Particularly in the U.S., experts predict that cannabis sales could reach immense heights in the next decade:
- $30 billion by 2025 (New Frontier Data)
- $50 billion by 2029 (Jefferies Group LLC)
- $75 billion by 2030 (Cowen Inc.)
- $100 billion by 2029 (Stifel Financial Corp)
Compared to a benchmark of $13.6 billion today, these numbers may seem ambitious—but they’re backed by major industry trends. 2020 could well be the year the market stabilizes, as consumers explore an array of retail options and vote with their wallets.
What’s more, key players in consumer industries—from alcohol and tobacco to beauty and fitness—are making big bets in cannabis and CBD-infused products. A higher number of partnerships could spark the next uptick for the industry’s potential.
The marijuana business is not for the faint of heart. But this is a big long-term game.
——Mark Zekulin, CEO of Canopy Growth Corp.
An Eye on What’s to Come
It’s clear there are differing viewpoints on the future of cannabis companies and their respective investors. As this snapshot of cannabis stocks unfolds and transforms in 2020 and beyond, could companies potentially buck the current trend and bounce back? Or will stocks continue to go up in smoke?
The Big Pharma Takeover of Medical Cannabis
The Big Pharma industry is entering the cannabis space, by swapping patients for patents. But what are the impacts of such a takeover?
The Big Pharma Takeover of Medical Cannabis
As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless companies.
Today’s infographic comes to us from CB2 Insights, and explores how and why the notorious Big Pharma are interested in the nascent cannabis industry.
Who are “Big Pharma”?
The term refers to some of the largest pharmaceutical companies in the world, considered especially influential as a group. To give a sense of their sheer size, the market cap of the top 10 Big Pharma companies is $1.7 trillion—Johnson & Johnson being the largest, with a market capitalization of $374 billion.
So far, Big Pharma has watched the cannabis industry from the sidelines, deterred by regulatory concerns. What we are seeing now is the sleeping giant’s takeover slowly intensifying as more patents, partnerships, and sponsored clinical trials come to fruition.
Could Cannabis be Sold Over the Counter?
The cannabis plant has been used in medicine for 6,000 years. However, there is still considerable debate around the role it plays in healthcare today. There are currently almost 400 active and completed clinical trials worldwide surrounding cannabidiol (CBD), a type of cannabinoid that makes up 40% of the cannabis plant’s extract.
Cannabis relies on CBD’s therapeutic properties, and recent studies suggest it may be useful in combating a variety of health conditions, such as:
- Multiple sclerosis
- Cancer side effects
As of 2019, 33 states and the District of Columbia have legalized cannabis for medical use. Its potential for pain management has led some experts to recommend it as an alternative to addictive painkillers, with one study of 13 states showing opiate-related deaths decreasing by over 33% in the six years since medical cannabis was legalized.
As the industry evolves, data is becoming increasingly important in understanding the potential of cannabis—both as a viable medical treatment, and as a recreational product. The shift away from anecdotal evidence towards big data will inform future policies, and give rise to a new era of consumer education.
Big Pharma’s Foray into Cannabis
Further legalization of cannabis will challenge Big Pharma’s bottom line, and poach more than $4 billion from pharma sales annually. In fact, medical cannabis sales are projected to reach $5.9 billion in 2019, from an estimated 24 million patients.
Seven of Canada’s top 10 cannabis patent holders are major multinational pharmaceutical companies, a trend that is not unique to Canada.
|Company Rank||🇨🇦 Canadian Patents||Company Rank||🇺🇸 U.S. Patents|
|1. Novartis||21||1. Abbvie||59|
|2. Pfizer||14||2. Sanofie||39|
|3. GW Pharmaceuticals||13||3. Merck||35|
|4. Ericsson||13||4. Bristol-Myers Squibb||34|
|5. Merck||11||5. GW Pharmaceuticals||28|
|6. Solvay Pharmaceuticals||7||6. Pfizer||25|
|7. Kao Corporation||7||7. Hebrew University of Jerusalem||19|
|8. Ogeda SA||7||8. Roche||17|
|9. Sanofi||6||9. University of Connecticut||16|
|10. University of Connecticut||6||10. U.S. Health and Human Services||13|
It comes as no surprise that many pharmaceutical giants have already formed strong partnerships with cannabis companies, such as Novartis and Tilray, who will develop and distribute medical cannabis together in legal jurisdictions around the world.
Data is the Missing Link
While the body of knowledge about the many uses of cannabis continue to grow, clinical evidence is key for widespread adoption.
Products backed by data will be a defining criteria for major companies to come into the market en masse. And ultimately, Big Pharma’s entry could accelerate public understanding and confidence in cannabis as a viable option for a range of ailments, and mark the next major milestone for the industry.
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