Depending on who you ask, the burgeoning marijuana industry in Canada is either a chance to make huge profits as legalization is rolled out or a speculative bubble ready to pop. But there's legitimate allure bringing hungry investors from both sides to the table.
In January 2018 alone, Canada’s recreational marijuana market raised more than $1 billion in capital—and it's not even legal yet. So, where are some of the most prominent Canadian cannabis investments coming from?
Europe Excited by Canada’s Cannabis Industry
This past January, Canadian licensed producers (LPs) Aurora Cannabis Inc. and Canopy Growth Corp., were among the top 10 most-traded shares on Nordnet, a Nordic online broker bank headquartered in Stockholm, Sweden. Interestingly, Sweden has no plans to legalize cannabis there, and actually has some of the strictest marijuana laws in Europe.
But as a savings adviser from Nordnet told the Toronto Star, the craze will lower to a simmer, because "we just can’t have more people trading in cannabis shares than in Volvo shares." He continued, “It’s interesting that so many Swedes are prepared to invest in cannabis companies while very few according to polls want to legalize cannabis in Sweden. There doesn’t seem to be a problem in making money from it.”
For the Swedes, Canadian cannabis stocks may be a fad, but for other European hubs Canadian LPs like Canopy Growth Corp., Aurora Cannabis Inc. and Tilray mean jobs and high-quality products. Europe may not have many legal recreational cannabis markets, but Germany, Denmark, Italy, Portugal and Croatia are hospitable soil for Canada's medical marijuana labs, distribution centres and production facilities. In fact, Tilray has broken ground on a 20 million euro facility in Portugal for marijuana cultivation, production and research.
If Europe's medical marijuana market is going to reach a 35.7 billion euro valuation in five years, it needs to support Canadian cannabis producers who can navigate the complex patchwork of the EU to produce and distribute cannabis, meet the EU's Good Manufacturing Practice (GMP) and keep products flowing to Europe.
A Canadian Marijuana Milestone in the U.S. Financial Markets
Meanwhile, the decision in January by the U.S. federal government to repeal the Barack Obama-era Cole Memo, opened the door for the U.S. federal government to prosecute canna-businesses—even in states with legal marijuana industries. So with this hanging over the American cannabis market, it’s no wonder why Americans are looking to Canada when they want to invest in the plant.
Cronos Group is one Canadian LP with American roots and a way in which Americans can invest in cannabis. Cronos Group's founder, Michael Gorenstein, is a foreign investor himself. Born in Ohio and schooled at the University of Pennsylvania, he spotted the investment opportunity Canadian cannabis presented early on. The discrepancies he saw between American federal and state laws made him want to move his money to Canada. What started as an investment into a Canadian company, eventually turned into Cronos.
The company made history in February by becoming the first company directly linked with the cannabis plant to list on a major U.S. exchange, the NASDAQ. Now Americans can feel more comfortable investing in a legal listed cannabis stock before it becomes legal across Canada.
American Big Tobacco Looking Towards Canadian Cannabis
Canadian Cultivated Products has bought a 75% equity position in Canada’s Island Garden Inc. and an 80% stake in Goldleaf Pharm Inc.—two medicinal marijuana companies.
But don’t be fooled by the name: Canadian Cultivated Products is a subsidiary of midsize U.S. tobacco company, Alliance One International, headquartered in North Carolina.
Since at least the 1970s, tobacco companies like Philip Morris International, British American Tobacco and RJ Reynolds Tobacco have been interested in marijuana. A study of their corporate documents, reviewed in the health-policy journal Milbank Quarterly makes it clear that Big Tobacco considers marijuana both a threat and a potential revenue stream,.
But companies the size of Philip Morris International won't enter the Canadian cannabis industry until it’s deemed less risky. That is, they'll watch the progress of Alliance One International before making a move.
Canadian Cannabis Getting Millions From International Tax Shelters
We can't talk about who's investing in Canada’s cannabis producers without mentioning claims by Cannabis Business Times that Canada's LPs get heavy financial injections from anonymous investors based in tax havens like the Cayman Islands, Belize, Barbados and the Bahamas. With documents made available through the Canadian Securities Administrators, the magazine confirmed foreign investments ranging from $25,000–$212.3 million sent from the Cayman Islands or other offshore tax shelters.
The story points to developments in the industry like rising star cannabis producer Hydropothecary and its new $80 million greenhouse and acquisitions galore plus high stock valuations as the result of financing by Cayman Islands anonymous accounts. These investments are subject to Canadian financial regulations and reporting requirements. Still, it will be interesting to see when recreational cannabis becomes legal if the general public demands LPs tell them exactly where their money comes from.
As the Canadian cannabis industry continues to grow, expect more international investments from those who truly believe in it and those just looking for a lucrative market in which to play with their dollars, krona, euros and more.
Photo credit: Christine Roy