When Canadian Liberal party leader Justin Trudeau ran in the last federal election, one of his campaign promises was – if he were to become Prime Minister – the immediate legalization and regulation of marijuana. Calling existing laws a “failed system,” Trudeau’s late September 2015 pledge did not go unnoticed by the Canadian public, provincial government leaders, lawmakers, doctors, and potential investors.
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While short on specifics such as a hard timeline for legalization, his pledge “The Liberal Party is committed to legalizing and regulating marijuana” was bookended by criticism of then-Prime Minister Stephen Harper’s Conservative government stance on legalization, which Trudeau stated was a “failed approach on marijuana,” one he vowed to stop if elected PM.

The voting public listened, and what some initially dismissed as a trivial, even unrealistic campaign pledge soon became reality when Trudeau was elected with a majority government on October 19, 2015, less than three weeks after vowing big changes would be coming surrounding marijuana laws in Canada. From the standpoint of potential investors, the prospect of making recreational marijuana products not only legal but publicly acceptable as a commodity was welcomed.

Despite a number of hurdles over the months to follow, including numerous police raids on not-yet-legal marijuana dispensaries across Canada (many of them re-opening the next day), controversy over “wasted” use of police resources during crackdowns, and fears over legal weed falling into the hands of children, the obstacles surrounding the issue of marijuana legalization in Canada have done nothing to deter eager investors. Initially touted to become legal on Canada Day, July 1st, it was recently reported that the sale of recreational marijuana will now be pushed to August, possibly September, with senators slated to hold a final vote on the issue, Bill C-45, on June 7th. When this happens, it will still take several months before legal marijuana can be purchased in Canada, as the provinces deal with retail sales issues.

The American example
In January of this year, California became the sixth state to start selling recreational marijuana, and if the massive line-ups outside one licensed store the very first day are any indication, it will remain extremely popular – and profitable. Buddy’s, a medical marijuana dispensary, became the first store in California to sell recreational marijuana products, and experienced the most traffic on the day of legalization in its seven-year history, with line-ups extending down the street and an overnight spike in sales estimated at between 50 and 60 percent. Previously operating as a marijuana collective, Buddy’s owner stated the “microbusiness license” granted to the company enables it to not only sell marijuana, but grow and cultivate the product from the same building, a tremendous logistical advantage.

This is welcome news to investors in America’s most populated state, as it demonstrates not only the overwhelming demand for recreational marijuana products, but the profits to be made. And many investment industry experts agree. Globally, medical and recreational marijuana products are estimated to be a $200 billion (U.S.) industry. With much of the stigma surrounding cannabis rapidly disappearing – and about 64 percent of the American population in favour of legalization – many have already invested in marijuana.

For anyone seeking cannabis-related opportunities, there are a number of resources, including New Frontier Data. Featured on television and in publications such as Forbes, Fortune, and The New York Times, the mission of New Frontier Data “is to elevate the discussion around the legal cannabis industry globally by providing unbiased vetted information and educating stakeholders to make informed decisions.” To achieve this end, the organization provides anonymous, private online links to access comprehensive big data in real time, which is compiled from its cannabis operator membership along with social media networks. Not taking a stand on the legalization of cannabis in the United States, the information enables others such as investors, researchers, academics and policy-makers to make informed decisions.

Many levels of government and investors alike are viewing marijuana legalization as a win-win for the economies of Canada and the United States. According to New Frontier Data’s recent study, Cannabis in the U.S. Economy: Jobs, Growth and Tax Revenue, 2018 Edition, a confluence of factors including the implementation of the 2018 Tax Cuts and Jobs Act has the potential to create tremendous revenue for the overall American economy, fewer tax hurdles for cannabis business owners, and an abundance of jobs. According to New Frontier Data’s Chief Executive Officer Giadha Aguirre De Carcer, full federal legalization of cannabis is forecasted to create over 654 000 new jobs immediately if implemented in all 50 states. This figure is projected to grow to one million new jobs and a cumulative $105.6 billion in federal tax revenue by 2025.

Buying marijuana stock
For investors, a number of stocks are available, including Canopy Growth and Aphria Inc., both trading on the Toronto Stock Exchange. In late April, Aphria’s subsidiary Broken Coast Cannabis – a Vancouver Island-based, fully licensed and purpose-built cannabis production facility – received a license amendment from Health Canada. The amendment will enable Broken Coast to create an extra 18 000 square feet of production space, totalling 44 000 square feet. The news was welcomed by the company and investors alike, as it will see the business’ yearly production capacity almost double, to 4 400 kilograms (9 920 pounds).

Although Canada legalized medical marijuana in 2001, recreational cannabis has the potential to become one of the biggest cash crops in history. And while the road to legalization in the nation has not always been a smooth ride, and debate continues over where legal pot will be sold, these and other issues have not slowed investment. According to Investopedia, Aphria’s market capitalization – the market value of a company’s outstanding shares – is at $1.707 billion, and Canopy’s is even higher, pegged at $4.575 billion. Similarly, others like Aurora Cannabis and PharmaCan Capital/The Crosos Group have market caps exceeding a billion dollars, with other marijuana companies such as Emerald Health Therapeutics, Emblem Corp., and THC BioMed International still boasting millions of dollars in market capitalization.

What does this all mean for investors? While some are comparing cannabis to the dot-com bubble of the late 1990s which saw equity markets riding high on Internet-based businesses experience a devastating crash, legal cannabis is already proven in some states in the U.S., and valued at $10 billion. At present, there are over 80 publicly traded cannabis companies trading in Canada, and Canopy Growth saw its value multiply six times.

While the road to legalization has been a long one, and many issues remain surrounding price, taxation, where it will be sold and more, the floodgates will undoubtedly open once federal regulations change across the entire U.S. and Canada, where provinces such as Ontario already have websites in place outlining the minimum age for marijuana (19), how much can be held at one time, packaging, rules for the workplace, and more. And while the federal Liberal party’s initial pledge of legalization by July 1st is extremely optimistic, and questions remain about how society will work with legal pot as the new norm, there is little doubt that cannabis will become a part of a well-rounded investment portfolio by year-end.