Are Marijuana Companies Good Investments?

Tilray is the second largest publicly traded marijuana company. Their sales have doubled in the last year and the stock recently went up 17%. With more and more states legalizing marijuana for medical or even recreational purposes, are marijuana companies good investments? Business Insider writes that weed stocks are surging.

Shares of Tilray – the second-largest publicly traded marijuana stock – were up more than 17% Wednesday after the Canadian company posted quarterly sales nearly double a year ago.

But, is it the growth of sales that drives the stock price up, or something else?

Tilray is now valued at $4.9 billion, despite its losses, and could keep growing thanks to investments from major players in other sectors, especially alcoholic beverages. Constellation Brands – which makes Corona and Modelo, among other popular drinks – catalyzed a huge rally in Canopy Growth’s stock through the announcement of two recent investments.

“We expect more alcoholic beverage companies to announce deals with Canadian LPs over the course of the year, and view Tilray as an attractive partner for an alcohol company looking for exposure to cannabis,” Vivien Azer, an analyst at Cowen, said in a note to clients on Wednesday.

Shares of Tilray are up 164% since the company’s IPO in July.

It would appear that companies in the alcoholic beverage business do not want to be left behind if the marijuana business really takes off. Or perhaps they are just hedging their bets. Either way, it appears that at least part of the run in price of Tilray is from investment by the folks who also sell alcohol.

Long Term Value of Marijuana Stocks

What is the intrinsic value of a marijuana stock? The value of a marijuana stock will go up as its sales increase. And, sales will go up as more and more jurisdictions legalize marijuana. Where is pot legal today and where might it be legal tomorrow?

Recreational Pot in Canada

Forbes reports that marijuana is now legal in Canada.

This fall, Canada is set to become the 2nd nation in the world to allow legal consumption of recreational marijuana. The Cannabis Act, passed by the Canadian Senate on June 21, controls and regulates the growth, distribution and sale of recreational marijuana in Canada. Prime Minister Justin Trudeau expects everything to be in place for consumption to begin on October 17.

The population of Canada is 36 million people, just a couple of million fewer than live in California.

Recreational Pot in the USA

Business Insider has a map showing where marijuana is legal for medical use and where marijuana is legal for recreational use in the USA.

Nine states and Washington, DC, have legalized marijuana for recreational use – no doctor’s letter required – for adults over the age of 21.

Legal marijuana sales exploded to $9.7 billion in North America in 2017, according to a report from Arcview Market Research and BDS Analytics. That represents a 33% increase over 2016, shattering previous expectations about how quickly the marijuana industry could grow in the face of federal prohibition.

The report also predicted the legal marijuana market will reach $24.5 billion in sales – a 28% annual compound growth rate – by 2021, as more state-legal markets come online.

It would appear that recreational marijuana is a growth industry, which explains why the folks who sell alcohol are buying a few shares of the competition just in case.
States where pot is legal for recreational use:

  • Alaska
  • California
  • Colorado
  • Maine
  • Massachusetts
  • Nevada
  • Oregon
  • Vermont
  • Washington
  • District of Colombia

Federal Law versus State Law

Federal law prohibits marijuana use for recreational purposes. But, in states where pot is legal, local law enforcement agencies do not arrest anyone and Federal Authorities have followed state procedures in these jurisdictions. As such it would appear that more and more states will legalize marijuana and increase the available market for marijuana companies.

In the end, the marijuana companies that will be good investments will be those which manage their cost of production, compete well on quality and price, and market most effectively. Right now, it is not clear who that will be!

Are Marijuana Companies Good Investments? PPT

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