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Cannabis stocks: The next stock market trend?

Despite the fact that the federal government recognizes marijuana as an illegal drug, a number of states have approved the use of marijuana for recreational and/or medical purposes.

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With the approval of medical marijuana in an increasing number of states in the U.S., as well as its recent legalization for both medicinal and recreational use in Canada, so-called “cannabis stocks” are experiencing a surge of popularity in the market. Cannabis stocks refer to companies that sell both medicinal marijuana and recreational weed. As the leading players in the cannabis industry continue to work towards eliminating legal barriers for the market, investor interest in this segment continues to increase.

The United States’ neighbor to the north, Canada, recently legalized marijuana. On October 17, 2018, a measure advanced by the Canadian Parliament legalized the recreational use of cannabis, opening the door to a variety of Canadian marijuana companies’ success. Whether the United States will follow suit and decriminalize the psychoactive substance remains unknown, but what is certain is that cannabis stocks have taken hold on the stock market and show no signs of slowing down. Read on to learn more about some up-and-coming Canadian cannabis firms, their chances at operating in the United States, and a new agreement between the state of New York and the cannabis company Canopy Growth Corp (Ticker Symbol: WEED).

Canadian cannabis firms

Thanks to the legalization of recreational pot in Canada, a number of Canadian cannabis companies are currently publicly traded on the Canadian stock markets, including:

    • Canopy Growth Corporation (TSE: WEED): Canopy Growth Corporation is a Canadian cannabis company based in Ontario that is the world’s largest cannabis company in terms of the cumulative value of all its shares. Going public the day after recreational marijuana was legalized in Canada, Canopy is currently traded on the Toronto Stock Exchange with the ticker symbol WEED.

  • Aurora Cannabis (TSE: ACB): Aurora Cannabis is a licensed Canadian cannabis producer which, at the end of 2018, operated eight productions facilities in over 15 countries. Traded on the Toronto Stock Exchange with ticker symbol ACB, Aurora was described by CNBC’s Squawk on The Street as “the perfect millennial momentum stock” due to its low share price. It is second only to Canopy in the world in terms of market capitalization. Aurora became publicly traded on the TSE just six days after the legalization of recreational weed in Canada – on October 23, 2018.

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Potential entry into the US and Europe for the cannabis industry

The U.S. Drug Enforcement Administration, or DEA, currently regards marijuana as a Schedule I controlled substance. Schedule I controlled substances are, according to the DEA, defined as “drugs with no currently accepted medical use and a high potential for abuse.” Marijuana is grouped in Schedule I with the powerfully addictive opioid heroin as well as several other illegal psychoactive substances. Given the federal scheduling of marijuana by the DEA, it seems unlikely that these companies could make significant commercial inroads in the United States. Commercial growth of cannabis companies may be more likely in Europe, where marijuana is less regulated by the European Union.

While legal in some states for medical or recreational use, marijuana is still listed as a Schedule I controlled substance by the DEA. (Photo by hanohiki via Shutterstock)

Will the United States Food and Drug Administration approve medical marijuana?

Despite marijuana’s status as a schedule I drug, the U.S. Food and Drug Administration recently approved the first drug containing an active ingredient derived from marijuana to treat very severe forms of epilepsy. Epidolex is a cannabidiol (CBD) oral solution which is meant to treat severe, rare forms of epilepsy in patients that are 2 years of age and older. It is likely, therefore, that American companies marketing CBD-based products could represent a significant market share in the pharmaceutical industry, while marijuana itself remains illegal. Medical marijuana has purportedly been reported to have significant therapeutic effects for a variety of diseases in addition to epilepsy, such as cancer, chronic pain, arthritis, and a variety of psychiatric conditions.

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Before Epidolex hit the market, the FDA had previously approved two man-made cannabinoid medicines synthesized in the laboratory to treat nausea and vomiting resulting from chemotherapy. More research is required to better understand all of the different therapeutic and clinical uses of this substance – and, of course, their potential ramifications for the decriminalization of marijuana in the future. Only time will tell, but of course, new therapeutic applications of the drug will generate growth in cannabis-based pharmaceutical drugs and could be a lucrative market for investors.

New Hemp Agreement NY State Approved for Canopy Growth Corporation

While Canadian cannabis companies will not be selling weed in the United States any time soon, the Canadian company Canopy has recently been granted a license to sell hemp in the state of New York. In a 2016 statement, the DEA defined hemp as a variety of the cannabis plant intended to be used for industrial purposes, such as paper, textiles, environmentally friendly plastics, construction, and fuel.

It seems likely that in the future, Canadian cannabis companies will seek to expand southward by operating hemp facilities in the United States and elsewhere in the world where marijuana use remains illegal. If other companies, such as Aurora, follow Canopy’s lead, this could be a profitable way for Canadian weed companies to expand.

(Featured image by Shutterstock Professional via Shutterstock)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Ms. Sandy Chin serves as Chief Investment Officer and Portfolio Manager at Tidal Bore Capital. Ms. Chin previously served as Portfolio Manager at Visium Asset Management, LLC until March, 2014 and focused on pharmaceutical stocks. She served as a Senior Analyst S.A.C. Capital Management, LLC and Moore Capital Management, LP. Ms. Chin was Vice President at Neuberger Berman LLC. She served as an Analyst at Donaldson Lufkin & Jenrette International and Bank of America Corporation.

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