New companies have been cropping up to support the budding cannabis industry. From hydroponic, heat lamp, and greenhouse firms to packagers and distributors, ancillary industries up and down the cannabis supply chain are building this industry.
It wasn’t so long ago that publicly traded companies shied away from investing in the nascent marijuana industry, even as California and Colorado began the legalization trend.
Times have quickly changed. While cannabis remains illegal on the federal level, 10 states have fully legalized marijuana, and many others have moved to decriminalize the crop. However, it’s fully illegal in 12 states, and many other states only allow cannabis for medicinal purposes.
But, with Canada having legalized cannabis nationwide, and with attitudes toward the drug seeming to be softening, more industries are cropping up to support the growing sector. Here are some ideas on how to invest in the cannabis industry.
James Boyd, education coach at TD Ameritrade, pointed out some Canadian publicly traded cannabis-related companies now have dual listings on the New York Stock Exchange™ and Nasdaq™. He cited a Fortune report attributed to cannabis-industry advisory firm Viridian Capital Advisors that stated cannabis-related companies raised almost $13.8 billion in 2018 versus $3.5 billion in 2017.
That kind of growth may just be the beginning, Boyd remarked.
The big news stories around the industry center on consuming companies, such as the 2018 news that beer and spirits maker Constellation Brands (STZ) increased its investment in Canadian medical-cannabis producer Canopy Growth (CGC) to 38%. Constellation said at the time it expected cannabis to be legal in the United States. Another beer maker, Molson Coors (TAP) has a 57.5% ownership in Canadian cannabis maker HEXO (HEXO) to make non-alcoholic, cannabis-infused drinks in Canada.
You can also invest in the cannabis industry through ancillary companies, which help the industry run smoothly by improving production or participating in the supply chain. Think of it this way: During the California Gold Rush, there were companies that sold the picks and shovels to miners. Ancillary cannabis companies are part of the “green” rush.
One of the biggest companies on that front is Scotts Miracle-Gro (SMG), best known for fertilizer and lawn care products. The company provides supplies needed to grow cannabis, from soil and fertilizer to growing systems and lights and everything in between. Growing cannabis indoors on a small scale can be notoriously costly in energy. A recent study by researcher Evan Mills estimated indoor cannabis growers use at least 1% of total U.S. power. As the legal industry leafs out, growers may be looking to professionalize by using greenhouses and becoming more energy efficient.
Use stock screener to narrow selections based on sectors.
Log in to your account at tdameritrade.com > Research & Ideas > Screeners > Stocks.
Another bigger company in the greenhouse sector is Innovative Industrial Properties (IIPR), which leases land to cannabis growers without the means to buy land or greenhouses. IIPR acquires, owns, and manages industrial properties, including facilities it leases to experienced, state-licensed operators who grow cannabis for medical use.
Hydroponic supply retailer GrowGeneration Corp. (GRWG) is another firm in the indoor farming space. Based in Pueblo, Colorado, it offers hydroponic equipment, power-efficient lighting, plant nutrients, and other products used by specialty growers.
A number of newer, smaller companies are also growing in this ancillary space.
As use increases, growers will need more efficient packaging and supplies to scale up. California-based KushCo Holdings (KSHB) makes packaging that complies with regulations for both medical and recreational cannabis.
Denver-based supply chain management firm Helix TCS (HLIX) helps its clients track cannabis sales. It also helps companies stay in compliance and offer asset protection, making them a “seed-to-sale” service provider.
Cannabis must be dry to be shipped, and Vancouver-based Enwave (NWVCF) has a dehydration technology that’s used in food and pharmaceutical industries as well as for cannabis.
Because cannabis remains federally illegal, firms in the sector have encountered hurdles to using traditional banks. Auxly Cannabis Group (CBWTF) offers investment, financial, and banking solutions for cannabis producers and retailers. While it also operates in other fields, the firm specializes in providing equity and debt investments to private and public cannabis firms.
MariMed (MRMD) takes the headache out of back-office work for cannabis companies with legal, accounting, human resources, and other corporate and administrative services.
These are heady times for the cannabis industry as legalization takes hold in more U.S. states. But as Boyd explained, investors still need to be cautious. Almost all of these companies are new and have short track records. And except for Scotts Miracle-Gro and Innovative Industrial Properties, the rest trade either over-the-counter or on the pink sheets.
These companies’ stocks also trade for less than $10 per share, something to consider, he noted. Many new cannabis companies have share prices in the penny-stock range.
“If I see something that is less than $10, it tells me there isn’t institutional investment in it, or prices would be higher. There’s also not a lot of analyst coverage on these companies yet,” Boyd said. “But if these get bigger, then more analysts will cover them, and the accuracy of the companies’ forecasts will become better, too.”
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s opinions, policies or services.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
International investments involve special risks, including currency fluctuations and political and economic instability.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, and a subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of the Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 Charles Schwab & Co., Inc. Member SIPC.