“With cannabis, youre talking about this massive step change in terms of the addressable market,” Vivien Azer said on CNBCs “Squawk Box” on Wednesday. “Youre bringing a $7 billion illicit market into the legal market and so it does require a different valuation framework.”
Azer, the only pot analyst from a major Wall Street research house, nearly tripled her 12-month price forecast on Canadian marijuana producer Tilray this week to $172 from $62. The new target for the stock, which trades in the U.S. on the Nasdaq, implies more than 30 percent upside from current levels. She also upped her forecast on Canadian pot company Canopy Growth.
Just how big the market will get is tough to put a number on right now, but Azer cites a cannabis executive who estimated the market could be one day worth $500 billion.
Video: Canada to become largest country with legal pot
Canadian Cops Mad the Man Is Keeping Them From Smoking Weed
“Our broader, big picture view of cannabis goes beyond the adult use launch in Canada,” she wrote in a report this week. “Rather, we believe this is the first step toward the establishment of cannabis as a key functional ingredient touching multiple consumer categories with four key verticals: adult use, beauty and nutraceuticals, OTC pain and sleep, and pharmaceuticals.”
Recreational use of cannabis in Canada becomes legal Oct. 17, though each of the countrys 10 provinces will be able to regulate the market within their jurisdiction independent of Ottawa.
The only other country to legalize marijuana is South Americas Uruguay, which has taken an extremely deliberate and strict approach. There, pharmacies sell to adults over 18, who can buy up to 40 grams per month – an amount tracked with fingerprint recognition. Only two types of cannabis are available.
While its still early days for the marijuana business, the first signs of its broader applications are easily recognized.
Tilray shares, which are up more than 650 percent since their July IPO, posted one of their best days ever mid-September after the company announced approval from the Drug Enforcement Administration to import weed to the U.S. for medical research.
In a move likely foreshadowing broader pharmaceutical application, the company will work with the University of California San Diego Center for Medicinal Cannabis Research to study the safety, tolerability and efficacy of marijuana for a neurological disorder.
“If this study can identify cannabinoids as a potential treatment for patients suffering from essential tremor, we can conduct further research and potentially provide alternative effective methods of relief for the high numbers of patients with Essential Tremor,” said Catherine Jacobson, director of clinical research at Tilray.
The globes major alcohol companies have also wasted no time exploring joint ventures with a handful of lucky cannabis producers.
Constellation Brands recently increased its investment in Canopy Growth with a 9.9 percent stake in the company, granting the Corona beer brewer a foothold in an industry it expects to soon be legal in the United States.
British Columbia, home of the "B.C. Bud" long cherished by American pot connoisseurs, has had a prevalent marijuana culture since the 1970s, after U.S. draft-dodgers from the Vietnam War settled on Vancouver Island and in the province's southeastern mountains. But a change in government last year slowed cannabis distribution plans there, too, and it will have just one store ready next Wednesday: a state-run shop in Kamloops, a few hours' drive northeast of Vancouver. By contrast, Alberta expects to open 17 next week and 250 within a year.
“We think that were by far the best company in the world — or in the best position in the world of any company — to capitalize on what is absolutely without a doubt going to be a huge market over the next 10 years, hundreds of billions of dollars,” Constellation CEO Robert Sands said in the companys earnings call Thursday.
“We expect to reap the benefits of our cannabis investment, which we see as being incremental to our core beer, wine and spirits portfolio,” he added.
And while the upside for Constellation appears obvious, the benefit is two-fold. A check from one of the worlds largest brewers is a welcome influx of capital for a handful of companies whose success will likely be defined by their ability to raise capital and scale production.
“Given the nascent stage of global cannabis, we believe that revenue growth should serve as the primary valuation methodology,” Cowens Azer said in her note. Specifically, Azer said her primary measurement when drawing price estimates is enterprise value divided by sales, divided by revenue growth, akin to a traditional price/earnings growth ratio.
Some Wall Street firms cover the pot stocks, but none the size of Cowen. Its still an emerging industry.
To be sure, the spike in certain pot stocks — combined with a limited count of floating shares for some companies — has left stocks like Tilray and Canopy with lofty valuations and rampant volatility.
Tilray has about 93 million shares outstanding, but the float — those shares actually available for trading — is just 21 million, according to FactSet.
Tilrays 2020 P/E ratio, meanwhile, is currently 300; Canopys is 125. Tilrays stock price has posted no less than 12 days of double-digit moves on percentage basis in the last month.
“There have been no shortage of recent catalysts to spur market and investor interest,” Azer said. “As such, volatility should be seen as a natural occurrence in the cannabis market, and not dissimilar to other nascent industries.”
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This, however, isnt sitting well with some officers and those who represent them. On Twitter, Tom Stamatakis, president of the Canadian Police Association, said that the 28-day ban is beyond ridiculous; has nothing to do with protecting members or public. Stamatakis said if the RCMP was really concerned about this issue they would create similar prohibition for excessively long extended shifts, consecutive work days, overtime & on call because fatigues impairing effect is well known. Damn.
In this Sept. 25, 2018 photo, Devin Melnyk, a long-time marijuana grower and a consultant with Pure Sunfarms, holds trimmed marijuana as it comes out of a high-volume cannabis trimming machine at a massive tomato greenhouse being renovated to grow pot in Delta, British Columbia. On Oct. 17, 2018, Canada will become the second and largest country with a legal national marijuana marketplace. (AP Photo/Ted S. Warren)
DELTA, British Columbia (AP) — Mat Beren and his friends used to drive by the vast greenhouses of southern British Columbia and joke about how much weed they could grow there.
Yup, in the great topsy-turvy world that is Canadas forthcoming legalization, one of the most interesting things has been watching cops deal with it. Now, with legalization just a week away, some cops are finding out that their employer (the man) isnt exactly the hippest fella on the block when it comes to cannabis.
Years later, its no joke. The tomato and pepper plants that once filled some of those greenhouses have been replaced with a new cash crop: marijuana. Beren and other formerly illicit growers are helping cultivate it. The buyers no longer are unlawful dealers or dubious medical dispensaries; its the Canadian government.
On Oct. 17, Canada becomes the second and largest country with a legal national marijuana marketplace. Uruguay launched legal sales last year, after several years of planning.
Not all police are cut from the same blue cloth though: Police forces in Ottawa and Vancouver treat smoking up much like alcohol—as long as you dont come in ripped outta your tree youre good—which seems like a sensible approach.
Its a profound social shift promised by Canadian Prime Minister Justin Trudeau and fueled by a desire to bring the black market into a regulated, taxed system after nearly a century of prohibition.
It also stands in contrast to the United States, where the federal government outlaws marijuana while most states allow medical or recreational use for people 21 and older. Canadas national approach has allowed for unfettered industry banking, inter-province shipments of cannabis, online ordering, postal delivery and billions of dollars in investment; national prohibition in the U.S. has stifled greater industry expansion there.
Canada is preparing for the day that sales of marijuana for recreational use become legal. About 100 dispensaries across the country are expected to be open on the first day of sales on October 17th. (Oct. 10)
Hannah Hetzer, who tracks international marijuana policy for the New York-based Drug Policy Alliance, called Canadas move extremely significant, given that about 25 countries have already legalized the medical use of marijuana or decriminalized possession of small amounts of pot. A few, including Mexico, have expressed an interest in regulating recreational use.
Its going to change the global debate on drug policy, she said. Theres no other country immediately considering legalizing the nonmedical use of cannabis, but I think Canada will provide almost the permission for other countries to move forward.
At least 109 legal pot shops are expected to open across the nation of 37 million people next Wednesday, with many more to come, according to an Associated Press survey of the provinces. For now, theyll offer dried flower, capsules, tinctures and seeds, with sales of marijuana-infused foods and concentrates expected to begin next year.
The provinces are tasked with overseeing marijuana distribution. For some, including British Columbia and Alberta, that means buying cannabis from licensed producers, storing it in warehouses and then shipping it to retail shops and online customers. Others, like Newfoundland, are having growers ship directly to stores or through the mail.
Police forces across Canada should be ready for legalization of recreational marijuana next week because the federal government has provided funds, training and approval of drug-screening technology ahead of the big deadline, says a federal cabinet minister.
Federal taxes will total $1 per gram or 10 percent, whichever is more. The feds will keep one-fourth of that and return the rest to the provinces, which can add their own markups. Consumers also will pay local sales taxes.
Some provinces have chosen to operate their own stores, like state-run liquor stores in the U.S., while others have OKd private outlets. Most are letting residents grow up to four plants at home.
Canadas most populous province, Ontario, wont have any stores open until next April, after the new conservative government scrapped a plan for state-owned stores in favor of privately run shops. Until then, the only legal option for Ontario residents will be mail delivery — a prospect that didnt sit well with longtime pot fan Ryan Bose, 48, a Lyft driver.
Potheads are notoriously very impatient. When they want their weed, they want their weed, he said after buying a half-ounce at an illicit medical marijuana dispensary in Toronto. Waiting one or two three days for it by mail, Im not sure how many will want to do that.
British Columbia, home of the B.C. Bud long cherished by American pot connoisseurs, has had a prevalent marijuana culture since the 1970s, after U.S. draft-dodgers from the Vietnam War settled on Vancouver Island and in the provinces southeastern mountains. But a change in government last year slowed cannabis distribution plans there, too, and it will have just one store ready next Wednesday: a state-run shop in Kamloops, a few hours drive northeast of Vancouver. By contrast, Alberta expects to open 17 next week and 250 within a year.
No immediate crackdown is expected for the dozens of illicit-but-tolerated medical marijuana dispensaries operating in British Columbia, though officials eventually plan to close any without a license. Many are expected to apply for private retail licenses, and some have sued, saying they have a right to remain open.
British Columbias ministry of public safety is forming a team of 44 inspectors to root out unlawful operations, seize product and issue fines. Theyll have responsibility for a province of 4.7 million people and an area twice as large as California, where the black market still dwarfs the legal market that arrived in January.
Chris Clay, a longtime Canadian medical marijuana activist, runs Warmland Centre dispensary in an old shopping mall in Mill Bay, on Vancouver Island. He is closing the store Monday until he gets a license; he feared continuing to operate post-legalization would jeopardize his chances. Some of his eight staff members will likely have to file for unemployment benefits in the meantime.
That will be frustrating, but overall Im thrilled, Clay said. Ive been waiting decades for this.
The federal government has licensed 120 growers, some of them enormous. Canopy Growth, which recently received an investment of $4 billion from Constellation Brands, whose holdings include Corona beer, Robert Mondavi wines and Black Velvet whiskey, is approved for 5.6 million square feet (520,000 square meters) of production space across Canada. Its two biggest greenhouses are near the U.S. border in British Columbia.
We used to joke around all the time when wed go to Vancouver and drive by the big greenhouses on the highway, he said. Like, Oh man, someday. Itd be so awesome if we could grow cannabis in one of these greenhouses. We drive by now, and were like, Oh, were here.
Next to Canopys greenhouse in Delta is another huge facility, Pure Sunfarms, a joint venture between a longtime tomato grower, Village Farms International, and a licensed medical marijuana producer, Emerald Health Therapeutics. Workers pulled out the remaining tomato plants last winter and got to work renovating the greenhouse as a marijuana farm, installing equipment that includes lights and accordion-shaped charcoal vents to control the plants odor. By 2020, the venture expects to move more than 165,000 pounds (75,000 kg) of bud per year.
Some longtime illegal growers who operate on a much smaller scale worry they wont get licensed or will get steamrolled by much larger producers. Provinces can issue micro-producer licenses. But in British Columbia, where small-time pot growers helped sustain rural economies as the mining and forestry industries cratered, the application period hasnt opened yet.
Sarah Campbell of the Craft Cannabis Association of BC said many small operators envision a day when they can host visitors who can tour their operations and sample the product, as wineries do.
Officials say they intend to accommodate craft growers but first need to ensure there is enough cannabis to meet demand when legalization arrives. Hiccups are inevitable, they say, and tweaks will be needed.
Leaving it to each province to decide whats best for their communities and their citizens is something thats good, said Gene Makowsky, the Saskatchewan minister who oversees the provinces Liquor and Gaming Authority. Well be able to see if each law is successful or where we can do better in certain areas.
British Columbia safety minister Mike Farnworth said he learned two primary lessons by visiting Oregon and Washington, U.S. states with recreational marijuana. One was not to look at the industry as an immediate cash cow, as it will take time to displace the black market. The other was to start with relatively strict regulations and then loosen them as needed, because its much harder to tighten them after the fact.