5 Companies Using Tech to Transform the Cannabis Industry
Jun 05, 2018LONDON: In a matter of weeks, Canada will most likely legalize marijuana for recreational use. Expectations for a pot boom sent stocks soaring in 2017, and while enthusiasm ebbed early this year the index for cannabis stocks is up 71 percent from November last year.
Production of marijuana is expected to surge this year and companies are looking abroad for more investment. Mentioned in today's commentary includes: GW Pharmaceuticals plc (NASDAQ:GWPH), Canopy Growth Corporation (OTC:TWMJF) (TSX:WEED), Scotts Miracle-Gro Co. (NYSE:SMG), Aurora Cannabis (TSX:ACB) (OTC:ACBFF), Hydropothecary Corp (TSX-V:THCX).
"Cannabusiness" is one of the hottest market trends this year but finding the right company can be challenging. The industry is full of risky plays: growers who lack a market outlet, or distributors without access to sufficient product.
Analysts have become wary, even warning investors away from the riskiest plays. But that doesn't mean there isn't plenty of opportunity for investors who do their research make smart choices.
Here are five companies that span the cannabis space, who could profit from this year's biggest trends in the pot market:
#1 GW Pharmaceuticals (NASDAQ:GWPH)
This major pharma company is getting into the cannabis game through a major industry milestone: in 2018, GW Pharma received approval for its cannabis-based drug Epidiolex from the Federal Drug Administration. For the first time, the FDA approved a drug based on cannabis for the American market...and GW Pharma's stock enjoyed a huge boost at the news. The drug itself is expected to be a big seller, one of the 10 biggest new drugs of 2018 according to Evaluate Pharma.
Epidiolex reduces seizures in patients and could usher in a new age of federally-approved cannabis-based drugs used for a wide variety of treatments. And GW has some of the world's leading experts in the field of marijuana research.
With the U.S. government ready to step in to reduce opioid abuse, cannabis drugs like Epidiolex could get a boost. GW Pharma is the first to profit from this trend, and it could be the pioneer that brings cannabis drugs into the mainstream.
#2 BLOCKStrain Technology Corp. (DNAX - Trading on the TSX-Venture)
Marijuana is an industry that comes with a lot of risk, and even more uncertainty-products are developed and sold on the black market, producers are unsure if their plants are adequately protected from intellectual theft, and consumers have little protection or quality control. But now, a company has emerged to solve those problems by deploying the power of the blockchain.
BLOCKStrain (DNAX - Trading on the TSX-Venture) is the first company dedicated to verifying marijuana products as they enter the market. The company has developed a "smart hub" for cannabis, a repository that can act as a "single source of truth for cannabis strains and their ownership."
The company uses the blockchain technology that allows transactions to be processed at lightning speeds without the need for a sluggish middleman. BLOCKStrain's network will act as a "clean, immutable, legal and transparent distribution network of product between producers and consumers." It's the first time a company has dedicated itself to bringing this level of security and transparency to the pot market.
BLOCKStrain verifies every marijuana product that clients add to its blockchain database, tracking products and ensuring validity.
Their service is a crucial one. As Canada undergoes wide-spread legalization of marijuana, ensuring greater transparency for producers and consumers will be crucial to the industry's growth, which could be as large as a $77-billion market.
BLOCKStrain has already signed on its first client: WeedMD Inc., a fully licensed producer (LP) under Canada's Access to Cannabis for Medical Purposes Regulations (ACMPR).
According to Derek Pedro, design, cultivation and production partner at WeedMD, "BLOCKStrain is best positioned to protect our intellectual property by further validating and securing our best-in-class genetics."
In March, BLOCKStrain received a $500,000 infusion from WeedMD. And this deal is just the first of many: several other clients are about to ink deals, and BLOCKStrain has its sights set on every LP in Canada...and now, there are more than 100 that will need the services of the blockchain to verify and protect their products.
BLOCKStrain's CTO is a veteran of applying cutting-edge tech to the cannabis industry. As CTO of Weedmaps, he oversaw the company's multiple technology systems during an exciting growth phase in 2015. And why stop at pot? BLOCKStrain's CEO, Robert Galarza, has already indicated interest in broadening the scope of the company's services beyond cannabis to the grocery industry, which is valued at $2.3 trillion.
Blockchain could transform entire industries, and BLOCKStrain is poised to bring it to the weed business.
#3 Canopy Growth (OTC:TWMJF) (TSX:WEED)
Judging by market cap, Canopy Growth is the biggest pot player around. The grower bucked the trend in early 2018. As most cannabis stocks slumped, it enjoyed a 10 percent boost, stemming from investor confidence in the company's vertical integration.
Canopy has seen impressive growth, rising by 20.4 percent in the last three months and 292 percent in the last year on the Toronto exchange.
Canopy is set for a large expansion, in anticipation of increased demand after Canada's legalization goes through this summer. The company has seven facilities totaling 665,000 square feet and is developing greenhouses on 3.7 million square feet in British Columbia.
While the company is keeping expectations of growing potential conservative, with this much land there's a good chance it could emerge by 2019 as Canada's top grower. As a sign of its imminent graduation from scrappy start-up to established pot player, Canopy Growth has applied to list on the NYSE.
That will place it above the rest: a cannabis company with an established foothold with Fortune 500s and Blue Chip firms.
#4 Scotts Miracle-Gro Co. (NYSE:SMG)
A company with strong name-recognition in garden materials, Scotts Miracle Gro. has emerged as a major cannabis stock and a way to invest in the marijuana boom without exposure to riskier ventures.
Scotts has a 75 percent stake in Gravita International, a company that manufactures hydroponics equipment, a crucial component in marijuana cultivation. The company claims more than $250 million in revenue from their hydroponics holdings.
Scotts acquired another hydroponics firm last month, scooping up Sunlight Supply for $450 million. The aggressive move into hydroponics is part of a strategy concocted by Scotts CEO Jim Hagedorn, who hopes to pivot Scotts into a major cannabis player after the company hit a rough patch in the aftermath of the Great Recession.
The move seems to have paid off: Scotts saw solid growth during 2017 before falling in early 2018 with the rest of the cannabis market. Still, the price has doubled since the doldrums of 2014, and with growers increasing acreage to meet future demand, Scotts should expect demand for hydroponics products to grow at a steady rate moving forward.
#5 Aurora Cannabis (OTCQX:ACBFF) (TSX:ACB)
This cannabis firm just pulled off the first big acquisition in industry history: in May, it announced the takeover of MedReleaf for $2.5 billion. This comes after another big acquisition earlier in the year, when Aurora bought out CanniMed for $852 million.
With so much money to throw around, Aurora is on the verge of pulling an "Amazon" move: dominating every aspect of the marijuana supply chain, from production to distribution.
The company has a huge, 800,000 square foot growing facility that is fully automated: once complete, it could produce 100,000 kilograms of dried cannabis each year. Another facility, 1.2 million square feet in size, is planned for next year.
CEO Terry Booth wants Aurora to be the top grower in the industry, and has his sights set on spreading Aurora to distribution once legalization goes through in Canada.
Like a lot of pot stocks, Aurora shot up in the early part of 2018, only to tumble in February and March. Investors are greeting the news of the MedReleaf acquisition with caution, out of concerns that the company is spreading itself too thin.
But there's no question that Aurora will be the biggest grower in North America by the end of the year, in a superb position to dominate upstream and seize a huge chunk of the market. (PRN)
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