Here’s the full article link which documents the early days of capital markets getting interested – much more to read at the link
The Capital Markets Take Notice
The Viridian Cannabis Stock Index identifies and tracks 80 publicly traded companies in the emerging cannabis industry that we believe have the potential for growth. These companies are categorized across eleven different sectors. The Viridian Cannabis Stock Index was recently cited by Barron’s as the benchmark index for the cannabis industry (Barron’s, “‘Alternative’ Investments: Marijuana and Climate Change”, June 9, 2015).
The cultivation and retail sector of the Viridian Cannabis Stock Index has been the second best performing of the 11 sectors in our Index, returning 97.5% in 2013, 84.6% in 2014, and 102.1% in Q1’2015, before declining 29.0% in the second quarter of 2015. The cultivation and retail sector, as of the release of this report, contains eight companies. The sector’s strong stock performance and high exposure over the past few years has attracted the attention of the public and investors alike. In 2014 and through the first half of 2015, the cultivation and retail sector raised the second most capital among the eleven sectors in our Index. Over this same period of time, this sector had the fourth highest level of M&A activity. However, these figures do not include the capital raises or M&A activity of the private companies in this sector, which is much greater given that private companies make up the vast majority of the cannabis cultivation and retail sector. The availability of capital in the public markets and in private equity, in addition to large public interest, is driving the increasing number of new public and private companies focused in this sector.
We believe that the first significant strategic acquisition in the industry will come from “Big Tobacco”, major brands in the tobacco industry that are likely to acquire or partner their way into the cultivation and retail opportunities in the cannabis market. Early acquisitions will likely target those companies that have established early market share leadership in cannabis cultivation, product processing for sale, quality control and quality assurance, and wholesale or retail sales with established distribution channels.
The Business Opportunity – a $35 Billion+ Market
Cultivation and retail companies are looking to capitalize on the steady process of moving marijuana growth and sales “into the light”, in other words, the conversion of cannabis enterprises from illicit businesses run largely by criminal empires to legitimate ventures that operate within the proper legal and financial frameworks. Estimates of the legal cannabis industry’s sales to end users in 2014 vary between $2.0 billion and $3.0 billion. According to an article published on HuffingtonPost.com in October 2014, if all 50 states and the federal government were to legalize medical and recreational cannabis sales, the market would rise to around $35 billion per year within a decade. Other estimates for the total value of cannabis sales in the U.S., both legal and black market, vary widely, from Harvard economist and Cato Institute affiliate Jeffrey Miron’s 2010 estimate of $14 billion to George Mason University professor and marijuana reform activist Dr. John Gettman’s estimate of $120 billion, but many center on a range of $35 billion to $45 billion.
The Capital Markets in the Cannabis Cultivation and Retail Market
Despite lingering concerns of breaking federal law keeping the majority of publicly traded cannabis companies away from the direct production or sale of cannabis in the U.S., there has been a growing number of companies with a high enough risk appetite to position themselves as direct handlers. As the cannabis market matures and federal laws loosen, this sector will begin to see increased competition, which will help to spur growth. If these first movers are able to successfully refine their operations, they will be strategically positioned to generate high returns and capture significant market share in the industry.
In a move that could bolster investor confidence in businesses directly engaged in the emerging and growing Legal Marijuana Industry, the U.S. Securities and Exchange Commission has allowed a share registration to proceed for Terra Tech Corp. (TRTC) The revelatory aspect of this registration is that the company’s business model includes cultivation and sale of marijuana. The ease in which this was accomplished, and apparent lack of pushback or action by the SEC could allow similarly situated companies access to the equity market and be seen as a precedent in future registrations of businesses in the legal marijuana industry.
Positive developments at the state and federal levels have started to stabilize the business environment and accelerate market growth. As the legal cannabis markets have grown, so too has the size of cultivation operations. This rapidly growing market combined with the current legal uncertainty has created a window to invest in an emerging industry with extraordinary growth potential at a time of limited competition both in terms of capital and management. Eventually, the legal barriers, in the form of prohibition, will be removed, significantly increasing competition and in turn eroding the substantial opportunity seen in today’s emerging cannabis industry.
Today, there are over 25 publicly traded companies that can be classified as cultivation and retail plays in the cannabis sector. Several of these companies trade on Canadian exchanges (CSE and TSXV) and represent companies that are licensed producers under Health Canada’s Marihuana for Medical Purposes Regulations (MMPR) or that are seeking to obtain a license through the MMPR process.
The company with the highest market capitalization in the cultivation and retail sector is Canopy Growth Corp. (TSXV:CGC), the largest licensed producer in Canada that was created through a merger between Tweed Marijuana, Inc. and Bedrocan Cannabis Corp. in August 2015. As of market close on December 7, 2015, CGC had a market capitalization of $275.05 million CAD (approximately $203.62 million USD).