The Marijuana Sector: An Overview

Marijuana is legal in more than a dozen countries while others have mixed laws that allow its use for either recreational or medical purposes—or both. Uruguay was the first country to legalize it for recreational purposes. Jamaica decriminalized cannabis in 2015 and the country saw its first medical dispensary open up three years later.

In October 2018, marijuana became legal for recreational and medical use in Canada. As of July 2021, 18 states, two territories, and the District of Columbia legalized recreational marijuana. A total of 36 states and three territories legalized medical marijuana.3

The global marijuana market was estimated to be worth $9.1 billion in 2020 and is expected to grow 26.7% between 2021 and 2028. This growth is expected to be fueled by an increase in demand (thanks to the increasing degree of legalization around the world) along with a rise in the use of medical marijuana.

The industry is made up of a number of different companies, including:

• Plant touchers (those that deal directly with and handle plants)
• Ancillary service providers (dispensaries and manufacturers)
• Breeders and cultivators
• Extractors
• Manufacturers

Growing Demand
Legal marijuana companies are able to leverage one important advantage, which makes them slightly different from those in the tech sector. While tech companies often need to create demand or to educate their consumer base, marijuana startups face no lack of demand—especially in North America.

Investors who once backed tech firms are now funneling capital into the cannabis industry. PayPal co-founder Peter Thiel's Founders Fund became the first institutional investor to put money into the legal marijuana industry. The fund was the lead investor in Privateer Holding's Series B funding worth $75 million in April 2015. Privateer Holdings has multiple cannabis investments.

Snoop Dogg is another notable investor in the industry. The rapper makes no secret of his affinity for marijuana and is the director of Casa Verde Capital, a venture capital fund that invests in cannabis startups. The company's portfolio includes names like Dutchie, Green Tank, and Cannalysis.
He's not the only celebrity seeing green. Singer Justin Bieber partnered with California-based Palms to release packs of pre-rolled joints called Peaches in October 2021. Martha Stewart launched her own brand of CBD products, including wellness gummies and oil drops, after partnering with Canopy Growth. Stewart released the line in September 2020.

Marijuana Startups

Venture funding for marijuana startups seems to be pouring in from all directions. Commonly referred to as potpreneurs, marijuana startup leaders are betting heavily on the potential for increased legalization.

• Weedmaps was founded in 2008 and is based in Irvine, California. It expanded and now has offices in New York, Barcelona, Denver, Tucson, and Toronto. Weedmaps was the first marijuana tech and media brand and provides cloud-based software and data solutions to those within the marijuana industry.13 It also offers an app that connects consumers with dispensaries.14 The company was acquired by Grow One in 2015.
• Leafly allows consumers to rate and review cannabis strains, kind of like a highly specialized version of Yelp. Created by a trio of former Kelley Blue Book employees, the company started out as a simple side project in 2010. Within a year, it became a full-time enterprise and attracted the interest of Privateer Holdings. The company raised almost $41 million in three rounds of financing.

After the 2011 acquisition by Privateer, Leafly expanded with the aim of becoming a place for all types of marijuana users to find out more about everything related to marijuana, including which types of products are right for them and finding the dispensaries that sell what they need.

The marijuana industry is made up of companies that either support or are engaged in the research, development, distribution, and sale of medical and recreational marijuana. Cannabis has begun to gain wider acceptance and has been legalized in a growing number of nations, states, and other jurisdictions for recreational, medicinal, and other uses. Some of the biggest companies in the marijuana industry include Canopy Growth Corp. (CGC), Cronos Group Inc. (CRON), and Tilray Inc. (TLRY).
Many big marijuana companies have continued to post sizable net losses as they focus on investing in equipment to speed up revenue growth. Marijuana stocks, as represented by the ETFMG Alternative Harvest ETF (MJ), have slightly outperformed the broader market. MJ has provided a total return of 33.6% over the past 12 months, above the iShares Russell 1000 ETF's total return of 32.2%

Fastest Growing Marijuana stocks

• GrowGeneration Corp. (GRWG)
  

  GrowGeneration is a distributor of agricultural products and one of the largest hydroponics suppliers in the country. The company operates retail hydroponic and organic specialty gardening retail outlets. It offers thousands of products, including plant nutrition, farming soils, advanced lighting technology, and hydroponic and aquaponic equipment. It owns and operates 60 retail and distribution centers. GrowGeneration has been on an acquisition spree in 2021, its latest purchases including: Commercial Grow Supply, a California-based hydroponic superstore; and Hoagtech Hydroponics, a Washington-based hydroponic equipment and indoor gardening store. Hoagtech and Commercial Grow Supply marked GrowGeneration's 13th and 14th acquisitions since the start of the year, respectively. The financial terms of the transactions were not disclosed.

• Ayr Wellness Inc. (AYR.A.CX)
  

  Ayr Wellness is a cannabis company involved in the cultivation, manufacturing, and dispensing of cannabis and cannabis-derived products. The company's product portfolio includes flowers, tinctures, edibles, and vape products under brands including Kynd, Sira Naturals, Entourage, Highly Edible, Cannapunch, and Lit Cartridges. Ayr Wellness also trades OTC in the U.S. under the ticker AYRWF. The company recently announced that it has completed its acquisition of Garden State Dispensary NJ LLC, one of 12 vertical permit holders in New Jersey, for total upfront consideration of $101 million. Any earnouts based on exceeding revenue target thresholds in 2022 will be capped at a maximum of $97 million.

• Jushi Holdings Inc. (JUSH.CX)
  

  Jushi Holdings is a holding company focused on branded cannabis and hemp-based assets. The company is engaged in retail, distribution, cultivation, and processing operations. Its brands include: The Bank, focused on plant genetics and cultivation; The Lab, specializing in vape products and concentrates; Nira, a maker of hemp-based CBD products that are physician formulated; Nira+, a producer of medicinal THC products; Sèche, which offers various branded ground and flower cannabis products; and Tasteology, a provider of THC-infused products.20 Jushi also trades OTC in the U.S. under the ticker JUSHF. The company recently announced that it has completed its acquisition of Nature's Remedy of Massachusetts Inc. and certain of its affiliates. Jushi paid total upfront consideration of $91.2 million for the vertically-integrated, single-state cannabis operator.

• Planet 13 Holdings Inc. (PLTH.CX)
  

  Planet 13 Holdings is a vertically-integrated cannabis company engaged in the cultivation, production, and distribution of cannabis and related products. The company currently has operations in Nevada and California. The company offers vapes, edibles, pre-rolls, and concentrates. Planet 13's brands include, Planet 13 Las Vegas, Medizin, Trendi, Leaf & Vine, Purc Coffee, Planet M, Dreamland Chocolates, and HaHa gummies. Planet 13's stock also trades OTC in the U.S. under the ticker PLNHF.

• Verano Holdings Corp. (VRNO.CX)
  

  Verano Holdings is a vertically integrated, multistate cannabis operator. The company produces a wide range of medical and adult-use cannabis products, which it sells through its portfolio of brands: Verano, Avexia, Encore, and MÜV. It owns and operates 11 cultivation and manufacturing facilities and 85 retail locations in a number of states throughout the U.S. The company's stock also trades OTC in the U.S. under the ticker VRNOF. Verano announced in late July that it has agreed to acquire all of the equity interests of WSCC Inc., which does business under the name Sierra Well, for $29.0 million, subject to adjustment. Sierra Well has two major dispensaries as well as active cultivation and production capacity.

Other Marijuana Stocks

Pot stocks, as they are affectionately known, are a little different from traditional stocks. One major difference is that publicly traded stocks on major exchanges usually have at least 70% of their shares held by institutional investors. Pot stocks however are reliant on private sources of capital to fund their business which means that retail investors typically make up 91% of cannabis stocks investor base. This makes for a very volatile stock price.

4Front Ventures owns and operates cannabis cultivation, production and retail facilities. It cultivates marijuana, produces cannabis flower, edibles, and oil-based products, and distributes its products via medical dispensaries or adult-use stores. The company owns and operates production and retail facilities in five U.S. states. Its businesses include: BrightLeaf Development, which oversees cultivation, production, and manufacturing; Mission Dispensaries, a network of branded medical dispensaries and adult-use stores; and Pure Ratios, a maker of therapeutic cannabis products. 4Front's stock also trades OTC in the U.S. under the ticker FFNTF. The company announced in early October an agreement to acquire New England Cannabis Corp., a Massachusetts-based cannabis cultivator, for $55 million. The transaction is expected to close by the end of 2021.

Generally, Canadian cannabis companies can list in the US and the Toronto Stock Exchange (TRX). US-based cannabis companies however have limited options. Exchanges in the US are out of bounds for them. Their options are restricted to the US over the counter market (i.e. matched bargain) or a listing on the smaller Canadian Stock Exchange.

Investors wanting exposure to the US market should be targeting US-based companies as their Canadian counterparts are unable to operate in the US (although a few have been shrewd enough to negotiate options or bought small stakes in their US brethren, one such example is Canopy Growth 21% holding in TerrAscend). Although Canadian cannabis stocks do have potential with their ability to export to other markets in our opinion the action is in the US.

Stock Picking
If we have time on our hands, spare cash, and a penchant for risk then perhaps picking your own pot stocks is an option. Many of these stocks have increased in value by over 300% from their low point in 2020 thus already factoring much of the good news in the market.

A Few Interesting Facts

• According to the 2019 edition of the United Nations’ World Drug Report cannabis is the most widely used drug in the world with an estimated 188 million people have used it over the previous year.
• At least 135 countries representing 92% of the global population engage in some form of cannabis cultivation.
• Cannabis is native to India and Central Asia.
• The US market is by far the biggest, representing 25% of the total cannabis market, with only 5% of the population (incidentally, cannabis and marijuana are interchangeable words).
• At a federal level in the US cannabis is illegal
• Recreational marijuana is legal in only two countries, Uruguay and Canada. In December 2018, the 2018 Farm Bill in the US was signed into law, this allowed for the legal growing and distribution of hemp and cannabis with no more than 0.3 percent THC.
• In 2018 over forty million Americans reported using cannabis.
• Two-thirds of Americans favor cannabis legalization
• In the US thirty-five states have a medical cannabis program and eleven are fully legal including both medical and recreational (as of November 2020).
• By 2024 the US legal cannabis market is set to be worth $42bn from its current level of around $13.6bn.
• The legal cannabis market grew by 42% in 2019, total cannabis sales grew more than 30% for the fifth consecutive year.
• Over 260 million adults worldwide consume cannabis at least once per week, collectively spending $344 billion.
• Approximately 20% of the US adult population consume cannabis, whilst 12% are consistent consumers.
• California is the biggest market in the world.
• In 2020, it was found that the average amount each US cannabis consumer spends annually on cannabis products range between $500 to $2,500.
• Although cannabis is legal in Canada estimates are that the black market represents 71% of the market.
• US operators have the best technology, genetics, growing conditions, and product innovation in the world despite being restrained by federal law.