It’s no secret that the cannabis and CBD market is a rapidly emerging one. With recent regulatory changes allowing for the sale of recreational adult-use cannabis in Canada, and the production and sale of hemp and CBD in the United States, investors are clammoring to get involved.
Nonetheless, there’s no arguing that the country with the largest market potential for cannabis is the United States. In fact, in the year 2018, the market was worth more than $10 billion in the United States and it is expected to grow with a CAGR of 28% CAGR.
Not to mention, the CBD market is a massive one in the States as well. In 2018, the United States hemp and CBD market was worth just under $400 million. However, it is expected to grow to be worth $1.3 billion by 2022 (on the low end).
Considering this, it’s not surprising that the United States market is getting so much attention from investors. Nonetheless, not every publicly traded company will be a winner. So, who will be the winners? In my opinion, the four companies below represent the largest opportunities in the United States cannabis and CBD market.
Canopy Growth Corporation (NYSE: CGC)
The first company on the list, Canopy Growth Corp (NYSE: CGC), is well-deserving of its position. There are several reasons that I believe that Canopy Growth Corporation is likely to take a large share of the United States cannabis and CBD markets.
First and foremost, the company’s sheer size is impressive. In fact, it is the largest cannabis producer in the world, with a market cap of nearly $16 billion. CGC wasn’t just handed that market cap. They have a long history of dominance in the Canadian medical cannabis market, were one of the first to enter the Canadian recreational market, and are a dominating player in global markets.
Moreover, the company locked down a $4 billion investment from Constellation Brands (NYSE: STZ) in August of last year. This is an important partnership as Constellation Brands is a key player in a highly regulated alcoholic beverages market in the United States. As a result, CGC now has a partner that can help it navigate the complex regulations in the United States cannabis and CBD market.
Also, the investment gave the company the funding it needed in order to make large investments in infrastructure in the United States; the largest of which was just announced today.
In fact, Canopy Growth just announced a $3.4 billion deal, under which, it will acquire Acreage. The deal will be paid for with a mix of cash and shares. Under the terms of the agreement, the company will pay about $300 million in cash and just over a half share of CGC for each share of Acreage held.
Upon the execution of the agreement, Canopy plans on licensing its brands and other intellectual property to Acreage in order to bring its products into the United States market.
While this deal is contingent on cannabis becoming federally legal in the United States, when this takes pace, CGC will likely have the largest infrastructure footprint in the region as Acreage is a massive player in multiple markets within the United States.
It’s also worth mentioning that the company was the first of the big 4 Canadian Cannabis producers to enter into the United States CBD market. In early January, the stock climbed after the company announced that it received a license in New York to process hemp.
With a massive global footprint, a balance sheet that allows for serious investments in infrastructure within this emerging market, Constellation Brands as a partner, and big moves already being made to enter the United States market, CGC is a stock to watch as the market within the US continues to grow at a rapid rate!
Tilray (NASDAQ: TLRY)
Staying on the trend of Canadian cannabis producers we have Tilray (NASDAQ: TLRY). Known as one of the big 4 Canadian cannabis companies, TLRY is a stock that has a lot of attention.
While some say that the stock is overvalued, analysts disagree. In fact Cowen & Co analyst Vivien Azar (a 5 star rated analyst by the way), currently has a price target of $150 on the stock, suggesting that gains in multiples are ahead.
However, analyst opinions and the fact that Tilray is a massive company aren’t the only reasons that I believe that the company will play a big role in the United States CBD market. The truth is that the company has made several moves, positioning itself to take a large share of the space.
First and foremost, the company made the largest deal in the CBD space yet. In late-February, the company spent $300 million to acquire Manitoba Harvest. This was a big move, not only because of the value of the acquisition, but because Manitoba is the largest hemp foods producer in the world.
With this acquisition, TLRY is well positioned to start moving products into the United States. After all, Manitoba brings with it a strong line of ready-to-market hemp-derived CBD-infused products.
It’s also worth mentioning that the company’s balance sheet is relatively strong. This gives the company the funding that it needs in order to enter the United States market while continuing to build its infrastructure. This, combined with the Manitoba acquisition, the company’s strong history in the highly regulated Canadian medical and recreational markets, and a strong global footprint makes Tilray a likely winner in the race to the United States cannabis and CBD market leadership.
Veritas Farms (OTCMKTS: VFRM)
Veritas Farms (OTCMKTS: VFRM) is a relatively small player when compared to the big four, but I believe that the stock packs big four potential. As with Canopy Growth, there are several reasons that I’ve come to this conclusion.
First and foremost, the United States CBD market is a highly fragmented one. In general, a producer will produce the hemp. This hemp then goes to someone for the extraction and refining process. At the end, the CBD is sold to a manufacturer that produces the product and ships it for sale.
As one could imagine, problems can happen at each step down this line. Growers may not produce enough hemp, a mistake could be made in the refining process, or prices can fluctuate before making it to the manufacturer.
VFRM has a way around this. The company controls the entire process from seed to sale. The company operates a 140-acre facility where it grows the hemp, etracts and refines the CBD, manufactures the products, and sends them out for sale. This control over every step means that the company will not need to worry about delays in supplies, shifts in costs due to changes in market values, or the quality of the full-spectrum CBD that it uses in its products. It controls everything!
It’s also important to mention that at this stage in the game, a growing retail footprint is incredibly important. After all, those that get their names out early in an emerging market become the leaders in the long run. Which leads me to my next point.
Recently, Veritas Farms issued a press release announcing label and packaging changes. While the product labeling and packaging may lead to more stories, the bigger announcement was seen when you read between the lines. A snippet in the press release read:
VERITAS FARMS™ BRAND PRODUCTS CAN BE FOUND AT SEVERAL LEADING ONLINE AND BRICK-AND-MORTAR RETAILERS ACROSS THE UNITED STATES, INCLUDING SELECT CVS PHARMACY STORES.
This was an overwhelmingly important announcement. The company got its products into select CVS Pharmacy stores, effectively making it the first CBD company to announce an entrance into big-box stores.
All in all, while VFRM is a relatively small company, they are the first to announce a big-box entrance, they control their products from seed to sale, and they are already active in the United States market, avoiding the requirement for large amounts of funding to make an entrance. As a result, I believe that the stock represents a compelling opportunity for those looking to get into the Cannabis and CBD space.
Aurora Cannabis (NYSE: ACB)
Aurora Cannabis (NYSE: ACB) is another large Canadian cannabis producer. In fact, it is currently the third largest in the world by market cap. While the company hasn’t yet made its move into the United States CBD or cannabis market, I believe that there’s a very good reason for this.
Before a recent capital raise announement, the company only had just over $100 million in cash on hand. When making an entrance into a market this large, while maintaining operations at the third largest cannabis company in the world, $100 million isn’t enough to skate by.
Nonetheless, the company recently filed a prospectus to raise up to $750 million. This funding gives the company the capital it needs to enter the United States market while improving its infrastructure in Canada and around the world.
Now that Aurora Cannabis has the capital it needs to make an entrance, it’s just a matter of time until this happens, and it’s likely to make a splash when it does.
Let’s face it, Aurora Cannabis’ global strategy has been a strong one, making it the company that has taken the lion’s share of the international medical cannabis market. If the company were to apply its skills that made it the leader in international medical cannabis in the United States, there’s no reason to expect that the company would become anything but a key player in the market. This could lead to strong gains ahead!
I recently wrote a full report on ACB, click here to read it!
The companies above are the ones that I believe are going to be the ones to watch as the United States cannabis and CBD market emerges. What are your top picks? Join the discussion in the comments below!