It’s been legal in Canada for nearly a year, while an increasing number of states in the US are decriminalising it for medical purposes.
We’re of course talking about cannabis. But what stocks should be high on your list and which should you be more cautious about?
First off, the forecast for growth in this sector is huge. Global spending on legal cannabis is expected to increase by a whopping 230% to just over $31bn in 2022, from $9.5bn in 2017, and is then set to double to $66.3bn by 2025, according to various research reports.
Increased legalisation, as well as medical and recreational applications, are set to drive the boom.
However, while the market provides lucrative opportunities, complex regulations and restrictions on cannabis use in some parts of the world means it can be a volatile sector so it’s important to pick wisely.
One company which may be looking strong is Canada-based .
The firm has forecast a monumental increase in net revenues for the quarter ending 30 June 2019 to over $100m – compared to $19m the same period in 2018, while its shares have climbed over 14% year-to-date.
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The company said it is “defining the future of cannabis worldwide” and plans to launch a range of high-margin edible products, including chocolates, mints and hard baked goods, while its vape products are already proving to be extremely popular.
With its huge 300,000 square foot facility, set to be completed by the end of the year, Aurora is expected to produce 625,000 kilograms of cannabis annually by the end of 2020, making it a leading player in the marijuana market.
Aurora may also be a good bet due to its strong emphasis on quality, transparency, and regulatory compliance – all important factors in this sector.
With this in mind, investors might be more wary of CannTrust Holdings. The Ontario-based cannabis producer has got into some recent trouble with the regulators, with Health Canada identifying non-compliance in some aspects of the company’s operations back in June.
On top of this, reports this month from BNN Bloomberg suggest the company used seeds from the black market to grow marijuana, meaning an illegal form of cannabis was then sold on the recreational market.
Its share price has dipped from $7 (CAD) to just over $2 year-to-date.
Although the company is making moves to address its compliance shortfalls, and also plans to reduce its workforce by 20% to save on costs, it remains to be seen whether it can improve its standing in a sector where trust is crucial.
It seems Canadian companies lead the charge in cannabis. Toronto-based Cronos Group, an investment firm focusing on cannabis-based health solutions increased revenue by 80% to $5.7m (CAD) in 2018, however it reported a decrease in net income of $14.8m (CAD). Could now be the time to buy in?
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