Every investor should understand how the market for cannabis is developing – now and over the coming weeks, months, and years.
Choosing the companies best positioned to profit in the emerging market helps you gain an edge over those who simply “throw darts at a list of stocks” and pick cannabis companies without regard to industry realities.
But as legalization becomes more widespread throughout the United States and across the whole of Canada investors still face questions about what the realities of a mature cannabis market might be.
For some answers, we can look at Colorado – the first U.S. state to make recreational cannabis easily available.
That made some realities evident.
We know, for example, that in places where vaporizing (aka “vaping”) cannabis concentrate is legal, that form quickly takes over a significant part of the market.
Vaporizable concentrates are a value-added product, but they’re also fairly commoditized, meaning customers shop by product attributes, such as how rigorously it’s been tested, say, or the ratio of tetrahydrocannabinol (THC) to cannabidiol (CBD), as opposed to shopping by brand.
Renegade Investment Expert: “It’s time to double down – or even triple down – on your cannabis investments!” Read more…
The traditional marijuana bud, or “flower,” market, which in Canada is worth about $1.5 billion today, is still fragmented. Customers there are still experimenting with different strains, different growers and brands, and different cannabinoids and THC to CBD ratios. In other words, there are a lot of questions.
One big question facing the market – both in Colorado and worldwide – is whether consumers are willing to pay up for “super-premium” cannabis. That is, cannabis that is more expensive to produce… but that produces a better smoking experience.
There are many producers claiming to make such cannabis – that’s why it’s such a big question. After all, no one is going to advertise that they make the lowest-end cannabis on the market any more than Busch admits that its beer is lower-end than a craft brewer’s.
So how can an investor tell when a company is really producing super-premium cannabis… or merely claiming to grow it?
That’s a very important question because, naturally, the investment case for the genuine super-premium product tends to be much stronger than it might be for the pretenders.
One company last week gave us the answer loud and clear…
So Good, Even Competitors Are Racing to This Company’s Product
Last week, Supreme Cannabis Co. Inc. (OTC: SPRWF) signed a deal that serves as an important indicator of the direction of the market for cannabis “flower” – cannabis meant for smoking.
Supreme is a Canadian grower that started when a father began growing cannabis to treat his daughter’s chronic pain. All along, the company has claimed that its brand, 7ACRES, is superior to other cannabis.
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And lately it’s been proving it.
As Canada moves toward recreational use on Oct. 17, we’ve seen a variety of go-to-market strategies, but none quite like that of Supreme and its 7ACRES brand.
In addition to selling to retailers in Canada’s provinces, Supreme is selling its product to other producers. The idea is that these companies, primarily producers of commodity-grade cannabis, want a super-premium product to round out their product lines. Until recently, 7ACRES struck up these partnerships primarily with other smaller growers.
The company looks to be scaling up in the partnership department, though. Supreme recently signed a deal with one of Canada’s largest producers, Tilray Inc. (NASDAQ: TLRY). That puts Supreme in partnership with two of Canada’s giant producers; it previously signed a deal with Aurora Cannabis Inc. (OTC: ACBFF).
That these giants felt they needed 7ACRES product to supplement their own massive capacity is as clear an indicator as can be imagined that super-premium cannabis will be part of the sales mix in Canada – and that 7ACRES is producing real super-premium product.
The deals tell us investors two things:
- There will be significant market segmentation in the cannabis market as it matures. Even as branding increases, there will be price-differentiated products targeted to different markets. This makes sense – the alcohol markets work the same way. In fact, the big beer producers have been acquiring craft brewers to gain access to all price and quality points in their markets. Similarly, a company like Diagio Plc. (NYSE: DEO), itself heavily rumored to be considering the purchase of a Canadian cannabis asset, sells whiskeys at price points from $15 all the way up to $500.
- And there will be room for specialty growers in the long run. Right now, just about all cannabis producers are also growers. That’s actually an unusual industry model. High-end wine growers grow their own grapes, but lower-end producers purchase their grapes from independent farmers. Similarly, the beer and liquor companies don’t generally grow their own barley, corn, wheat, and rye.
In the long run, it’s clear that the cannabis industry will work like the wine industry. Most of the huge producers will sell off their greenhouses to commodity farmers if they can. Over time and with regulatory change, cannabis production will move outdoors and to low-cost areas in South America and Africa. However, there will still be room for specialty growers, whether indoors or outdoors.
As an investor, these facts will not be important – or baked into share prices – for a few years yet… which makes right now a smart time to move and make the most of our early advantage.
The bottom line right now: When a company claims to be producing a premium product, the best indicator of whether it’s telling the truth is if its competitors endorse that claim… with their wallets.
Four Cannabis Stocks Potentially Destined to Soar Up to 1,000% This Election Year
In the election year of 2012, marijuana stocks started rare gains of as much as 3,240%.
In 2014, they started producing up to 4,606% profits.
In 2016, they began rare climbs of 6,074% and more.
How much richer could select cannabis stocks make YOU in the election year of 2018? Take a look…
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