Industry insiders know it, and millennial spending patterns prove it: Big Tobacco and Big Alcohol are in trouble. Big Cannabis offers a more mindful recreational alternative – not to mention a medical solution that tobacco and beer simply can’t compete with.
Long gone are the days when counterculture hippies had to hide out somewhere and smoke joints; sure, there’s a romantic element to partaking in an illicit pleasure, but there is risk of arrest and prosecution.
The cannabis industry has come a long way since then. Globally recognized brand names are scrambling to get into the space even while marijuana is still a Schedule I-classified drug with “no currently accepted medical use and a high potential for abuse” (the same category as heroin, if you can believe it).
Canada is ahead of the game and has every reason to view the U.S. as quaint (to put it charitably) and a tad behind the times (to put it less charitably).
America’s laggard status appears a function of politics over populace, though, as a national Gallup survey found that 66 percent of Americans support legalizing marijuana, including a clear majority of both Democrats and Republicans.
With anti-pot Attorney General Jeff Sessions kicked out of office, although technically he “resigned,” William Barr has brought more of a laissez faire attitude to pot policy in America. Barr was staunchly anti-drugs when he took the attorney general position back in the George Bush Sr. administration, but times have changed drastically since the days of “Just Say No” and Reagan’s Reefer Madness.
One could say that legalized cannabis in the United States is like the Internet in 1995. We like the analogy proposed by Boris Jordan, Curaleaf’s (CURA.C) executive chairman and controlling shareholder, who explains that American cannabis today is “just like Russia [with the breakup of Soviet industries] in the 1990s…weʼre talking about an industry in its infancy that needs to be built up from scratch, legislation and all.”
“Built up from scratch” indeed, as the American cannabis industry’s growing pains are translating to a piecemeal, hard-fought approach to legalization. As it stands today, medical marijuana is legal in 33 U.S. states while the adult recreational use of marijuana is legal in 10 states and the District of Columbia, with Illinois set to be added to the recreational category on the first of January.
Perhaps the biggest hurdle to overcome (besides that whole Schedule I thing) is the fact that American cannabis companies still don’t have access to conventional banking, meaning that they can’t get loans from big banks and can’t allow their customers to pay for their cannabis products with credit cards.
These hurdles haven’t stopped (or even slowed down) the current wave of mergers, acquisitions, and consolidations in the American legalized cannabis market, however, as we’re now seeing “unicorns” (billion-dollar start-up companies) in the space.
Last month, the industry was rocked as Massachusetts-based Curaleaf Holdings agreed to pay a billion dollars for Portland, Oregon, start-up Cura Cannabis.
That might sound like an ambitious valuation for a small cannabis firm until you check the company’s revenues: Cura reported $117 million in sales in 2018, nearly triple their revenues from 2017. It’s little wonder, then, that The Portland Business Journal deemed Cura “Oregon’s fastest-growing company” while Willamette Week called longtime Cura CEO Nitin Khanna “The Unicorn.”
None of this guarantees a windfall for shareholders, however, and Cura’s share price has declined more than 15 percent in the wake of the acquisition. As contrarian investors, we view this not as a failure but as a potential opportunity: “Buy low, sell high” (no pun intended) is a strategy that has served us well in the cannabis space.
Which American cannabis company will be the next ‘billion-dollar baby’?
We’ve been looking closely at a number of under-the-radar contenders, including Crop Infrastructure (CROP.C), whose subsidiary, Elite Ventures Group, just entered into a massive CBD supply deal (to the tune of USD$89,500,000) with Bioscience Enterprises.
That agreement is just one of Crop’s irons in the fire, as they’ve developed an entire portfolio of assets focused on cannabis branding, real estate, and CBD brands – one of the most interesting of which is Canna Drink, a cannabis-infused functional beverage line.
Will the U.S. ever catch up to Canada in the global legalized cannabis niche? If enough American cannabis unicorns emerge from the wilderness, anything is possible.
Full Disclosure: CROP Infrastructure is an Equity Guru marketing client, and we own the stock.