DEEP DIVE

The Next Bitcoin?

Will today’s cannabis stockholders be tomorrow’s millionaires?

Imagine holding stock in a company you knew, without a shadow of a doubt, was on the one-way train to success. 

Well, as much as we can be sure about the stock market, anyway. If the last few years have taught us anything, it’s that we never know what’s around the corner. 

In the case of cannabis companies & the stock market, though, it’s about as sure as you can be. The consensus is, that it’s not a matter of if the stocks will take off, but when they will take off.

The Bull(ish) Path

If you look at the market summary of most publicly traded cannabis companies, you’d wonder why anyone is investing in them. 📉

Take a look at the one-year charts for Green Thumb Industries, Curaleaf Holdings, and Cresco Labs (U.S. companies): 

At face value, these stocks don’t look promising and unfortunately, the downwards trend continues with most other companies in our space. 

But, stockholders and some financial analysts believe it’s just a matter of time before cannabis stocks rise to the top and investors make serious coin. 💵

We have to agree.

The U.S. House voted on the Marijuana Opportunity Act (MORE Act) on March 30th. As a result, Canadian stock Canopy Growth Corp. saw a 5.3% increase on the same day. Tilray Brands increased 6.5% and Aurora Cannabis 8.5%. 

If just the mere possibility of federal legalization sends some stock prices soaring nearly 10% in one day, what will the stock market look like when federal legalization actually arrives? 🤑 

The United States cannabis also market strongly dictates the Canadian market, as we saw with the activity surrounding the MORE Act. 

Federal legalization could suddenly boost the valuation of dozens of Canadian and American cannabis companies overnight, which also means stockholders are reaping the benefits.

Will Cannabis Stockholders Make A Million? 💸

This question, of course, depends on multiple factors. 

First things first – federal legalization in the U.S. opens the door for American cannabis companies to list on the stock market. Currently, no cannabis companies with American operations are listed on American stock exchanges. 

That’s why you see American companies like Green Thumb Industries and Cresco Labs on the Canadian stock market. They went through a reverse takeover to list in Canada. In 2018, 76 of the 379 listed companies on the Canadian Stock Exchange were cannabis companies. 🌿

From a long-term investment standpoint, U.S. stocks are typically viewed as a better buy than Canadian cannabis stocks. The U.S. cannabis market was worth approximately $20 billion in 2020 and the Canadian market is currently worth about $6 billion, several years after federal legalization.

While the Canadian stock market is sure to see key growth after the U.S. federally legalizes, most predict the U.S. stock market will see the most significant increases. 📈

How much cannabis stockholders will make after federal legalization depends on a few things:

• The price of a share when legalization happens 
• The rate of growth for each cannabis company in the months following legalization 
• Which companies they have invested in
• How much they have invested 
• How long the stockholder holds their shares and doesn’t sell
• Whether the stock was U.S. or Canadian
• Etc.

Let’s assume the stock price of cannabis goes up, on average, 10% the day after federal legalization. Amazon recently broke the record for the greatest stock price increase in one day, at 14%. 

If one share is $5, a 10% increase in one day brings the share price to $5.50. This isn’t a huge increase, and we probably won’t see many millionaires after day one of federal legalization.

If we do, they were probably already pretty close to being worth a million. 

We will, however, see a steady increase after the initial jump, so millionaires would likely be in the making at this point. 

There’s also no guarantee of what this increase might look like. 🤷‍♀️

It could be one of the sharpest price jumps in stock market history. Given no other industry has been federally illegal, making billions, and on the stock market at the same time – we aren’t really sure what we’re working with until it’s here. 

Predicting how much stockholders make is challenging, but, we expect to see a few cannabis millionaires popping up 1-3 years after federal legalization.

Looking Forward

We are just waiting on federal legalization to come and disrupt the cannabis space – in a good way. The U.S. House recently approved the MORE Act for a second time.

The MORE Act would remove cannabis from the list of Scheduled Substances. It also includes social justice provisions to bolster those communities most impacted by the War on Drugs.

Democrat Senate Majority Leader, Chuck Schumer, was supposed to introduce his bill to legalize cannabis in April. It’s being pushed to August, to the outrage of much of the cannabis industry. 

Looking forward, we’re just waiting on federal legalization. 

Our Take

There won’t be much of a significant return on investment from cannabis stocks until federal legalization arrives, which has been the consistent theme of today’s piece. 

We do think the stock market price will be influenced by other legislative activity, however, like more states legalizing at the midterm elections this year. Just not on a significant or long-term level, if we had to make a guess. 

If you’re looking to invest in cannabis stocks, we recommend looking at U.S. stocks first. We personally believe it to be a smart investment, so long as you’re only investing what you can truly afford.

Many cannabis companies show profitable adjusted EBITDA and other metrics, but digging deeper into the financial report can tell a different story. 

Keep in mind that we aren’t investment advisors, so do your research and reach out to an expert if you have concerns about investing in the cannabis stock market. Share Today’s Story →

THE GREEN PAPER’S PERSPECTIVE

1) Big Brands Say No More Of Their Logos On Cannabis Packaging

TLDR: Some of the largest food and beverage companies like Kellog, Pepsi, and General Mills, are asking Congress to crack down on cannabis brands using copycat packaging. 

The Green Paper’s Perspective: We see absolutely nothing wrong with this and in fact, we encourage it. In most places, cannabis companies are already not allowed to design their product packaging in a way that might entice children. This includes cartoon characters in the design and in some cases, prevents the use of bright colors.

While these rules can be somewhat ambiguous, especially as you cross state/national lines, there are cannabis products copying packaging designs from large brands like Kellogs and General Mills. That’s a pretty clear infraction of the rule. 

In some cases, they feature the Trix rabbit or Chester Cheetah from Cheetos. Some designs are nearly identical to the original, non-cannabis version. This would definitely attract the attention of children and therefore goes against most state regulations.

Beyond the issue of minors being attracted to the product, ripping off packaging designs from other well-established companies isn’t creative, enticing, or even humorous. It’s lazy marketing and gives the cannabis space a bad name to both attract young kids and steal designs from other well-established brands. 

Much of the cannabis industry says they don’t want to be like any other industry and they want to do things their own way. We can’t do that if we’re taking packaging designs from well-established companies and tweaking them to fit the cannabis culture vibe.

We have plenty of creativity in this space to come up with new ideas, and I think most of the industry agrees with me. The copycat packaging seems to be a pretty small issue in our space. 

2) Canopy Growth Announces More Layoffs

TLDR: Canadian cannabis producer, Canopy Growth, just announced a round of layoffs slashing 250 roles. The company says this move will save up to $150 million within 12 to 18 months and they will reach profitability. 

The Green Paper’s Perspective: Layoffs aren’t uncommon in cannabis. With limited capital and ever-changing regulations, cannabis companies often have to eliminate some of their staff to keep their head above water. It’s, unfortunately, one of the unstable factors of a new industry, but the cannabis space definitely faces unusual circumstances most industries don’t being federally illegal and severely limited. 

The latest round of layoffs means approximately 1,600 employees have left or lost their jobs at Canopy Growth since 2020. Canopy Growth has yet to turn a profit, and this move is an effort to change that. The company has lost approximately $2.5 billion USD since 2015.

It’s hard to have an opinion about a round of layoffs because of course – it sucks. But we also understand business needs and sometimes layoffs are part of that. We just hope Canopy Growth handled appropriately and respectfully with those who were laid off. We haven’t seen reports saying otherwise like in some other cases, so that’s a good sign. 

Almost every major cannabis company has had one round (or multiple rounds) of layoffs at one point in time including PAX Labs, Leafly, Weedmaps, HEXO, Eaze, CannTrust, and more.

In our opinion, layoffs don’t signal a failing industry. In this case, we think tight financial restrictions, the volatility of cannabis, and the inability to be regulated as a normal industry in the U.S. contribute to layoffs in many cases, even in Canada where Canopy Growth is based.

TOP OF MIND

Elon Musk Comes For Pharma: The new Twitter owner tweeted he’s talked to more people who have been helped by ketamine and psychedelics over SSRIs & amphetamines.

In a reply to another user’s tweet, he said Wellbutrin is worse than Adderall and has triggered thoughts of suicide in people he knows, which has understandably upset some people. Others are fully on board. 

No mention of cannabis in the latest Musk Twitter saga, but he’s not shy about his support for the plant. 

Politicians Are A Tweetin’: We’re seeing tons of politicians tweet about their support for cannabis legalization, including Elizabeth Warren, Bernie Sanders, and even Chuck Schumer. We saw tons of Twitter support on 4/20. 

American politicians vocally support cannabis legalization, but the Congressional floor tells a different story. 

We hope to see even more cannabis activists and industry professionals than we already do getting involved with legislative action in 2022. More politicians need to hear our stories and meet us face to face.