A Guide to Canadian Cannabis Stocks : What to know before Investing

What to know before Investing

When Canada became only the second country in history to legalize the use of recreational cannabis on October 17, 2018, enthusiasts jumped at the chance to partake in all that the plant had to offer, both leisurely- and from a financial perspective.  

With legalization, the recreational marijuana market launched as well, and today, cannabis companies continue to go public on the TSX making their stocks available to the general population.

However, even in a lucrative industry that is becoming more enticing to investors, there are still some issues that need to be ironed out.  First, there isn’t enough supply to meet demand. While Canadian marijuana growers are scrambling to increase production, many of those efforts won’t be completed until later this year or 2020.  Second, Canada has yet to finalize regulations relating to cannabis edibles (including cannabis-infused beverages and concentrates), a huge factor that will inevitably skyrocket sales.

These two issues will make the next few months crucial for Canadian cannabis stocks. The bottom line – companies that can increase their growing capacity and get on board with selling edibles the fastest will stand to make the most in sales.  

While some cannabis companies are struggling to keep up with supply, Canadian-headquartered PharmaCielo Ltd. is already ahead of the game, with the company’s prime growing operations located in Colombia.  The warm climate makes it more feasible to grow cannabis outdoors for most of the year, relying on the sun instead of electricity.

For all producers, cannabis is an energy-intensive product that requires extensive sunlight, so investors need to look at companies with low growing costs, as this also correlates to the bottom line.

In addition to cost-effective operations, PharmaCielo, the premier cultivator and producer of medicinal-grade cannabis oil, recently went public on the TSX Venture Exchange under the symbol (PCLO).  

Leaders of PharmaCielo say the company is ready to create significant value for its shareholders and partners by providing consistently high quality, large volume inputs of cannabis.  The company will focus on expanding its current cultivation from 6.0 hectares of open-air greenhouse to approximately 20 hectares.

This is a good starting point for investors – knowing how much cannabis companies can grow and figuring out at what point the company will have to use capital to expand.

With CIBC predicting C$6.5 billion in retail sales by 2020, companies will be able to sell more cannabis than they are currently producing, so the question to ask is how much are they planning to produce in the future.

Investors also need to have a watchful eye on product trends – which products will be successful and which brands will attract consumers over others.  It’s a “wait and see” approach since in the long run, no one can predict what exactly will succeed.

Beyond domestic sales, companies that have deals with international pharmaceutical companies for distribution are also worth noting.  Lastly, investors should look for companies that are keeping up with technology, a fundamental part of the future to any business, especially in the cannabis sector.  

According to market research, global spending on legal cannabis is expected to grow 230% to $32 billion in 2022, giving investors substantial opportunities to grow their portfolios in the coming years.

I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank.