Get Smart on Cannabis

Industry experts Ross Silver and Greg Harrison talk all things cannabis, from outlook to investment strategy.

The ongoing decriminalization of cannabis has made it one of the fastest growing industries in North America. In both the U.S. and Canada, the green-rush is on to establish hegemony in a wide-open marketplace. A $10 billion industry without a dominant player creates a powerful vacuum, strong enough to attract thousands of companies, all trying to become the trusted brand in the space.  The cannabis industry is generally comprised of three primary vertical markets: grow (which includes extraction and cultivation), dispensary, and biotech.

As competitors jockey for position, we expect winners will begin to emerge over the next 12 months. That’s because the industry is quickly reaching critical mass as sales are ramping and consolidation is beginning to occur. This is particularly true in the dispensary segment where larger companies like MedMen Enterprises Inc (MMNFF) and Canopy Growth Corporation (CGC) are beginning to acquire smaller dispensaries, in a race to become the McDonalds of the cannabis industry.

On the grow side, battle lines are being drawn as companies scramble to scale their business in order to meet anticipated demand. Companies like Emerald Health Therapeutics, Inc. (EMHTF) are in the process of aggressively expanding their production capacity.

On the biotech front, GW Pharmaceuticals plc (GWPH) achieved the first major milestone for a cannabis-biotech company when the FDA approved GW’s cannabidiol (CBD) based drug, Epidiolex. Currently, cannabis (and all cannabinoids contained therein) are considered a Schedule I substance by the DEA, meaning that the government views cannabis as being highly dangerous and without medical benefit. However, as a consequence of Epidiolex’ FDA approval, the DEA will probably have to reschedule CBD as a Schedule II substance or possibly even lower.

However, just because CBD is rescheduled does not mean that cannabis or products containing the psychoactive ingredient tetrahydrocannabinoil (THC) must be as well. In fact, they probably won’t. Nonetheless, the momentum behind the cannabis movement has reached critical mass, and we believe that the U.S. is on a path to federal legalization within a few short years. Lastly, Canada is the first country in North America to legalize cannabis on a federal level with legal sales expected to kick off on Oct. 17 this year.