As state legalization of marijuana continues across the U.S. (and will likely continue after 2016 elections) it’s being accompanied by the growth of an entirely new and confusing market of goods and services.
It’s not just about growers and dispensaries. Marijuana has entered the markets of security, agriculture, food & beverage, and more.
Analysts are calling this movement, the “Green Rush.”
They’re drawing a connection to the California Gold Rush of 1849, when hundreds of thousands of gold-seeking Americans flooded the Pacific Coast in search of massive wealth.
However, if you take a moment to look at the economics of the 1849 Gold Rush, you’ll notice that the largest profits were made not from mining gold itself, but from peripheral businesses.
California General Stores, which sold mining essentials like tools, hardware, clothing, and shelter regularly generated daily sales equivalent to $125,000 in today’s money.
Fashion-giant Levi Strauss made his fortune selling a new, durable trouser to miners who needed to carry chunks of ore without tearing fabric.
You probably know them as jeans.
While individual miners worked day in and day out to procure their meager fortunes, the largest fortunes during the Gold Rush were made by individuals who never even got involved with proper gold mining.
The same is likely for the Green Rush.
It’s understandable that everyone rushed for gold in 1849, and it’s understandable that you probably want to rush for weed stocks now.
But the industry is still relatively unknown, and because of that we should all take a moment to examine where profits can really be made in this market:
Consider the periphery...
Profits won’t generate solely from growers and dispensaries. Rather, the inputs of the industry will be the truly smart plays. This means: security, paraphernalia, social media, etc.
When we talk about the inputs of the marijuana industry, delivery always comes to the forefront of conversation. You know, the “Ubers for pot.”
There’s a ton of these companies: Eaze, Nugg, Meadow. Eaze just received a $10 million investment from rapper Snoop Dogg.
There are many choices — this doesn’t mean there are many wise choices.
But, the wise choices do exist if you look...
Canadian-based OrganiGram (OTCMKTS: OGRMF) is a licensed producer of medical marijuana.
Regulated by the Marihuana For Medical Purposes Regulations, OrganiGram is devoted to producing high-quality, condition-specific strains of medical marijuana for its patients in Canada.
The reason we bring this company up during a discussion of marijuana inputs is because OrganiGram has just expanded into the delivery sector.
Earlier this year, OrganiGram secured a $5 million credit to expand its production plant and delivery services. One month later, the company received approval for an expansion of four additional grow rooms.
Its recent financials show impressive sales throughout Q3 2015, increasing almost 300%. Patient registration and overall growth has also rapidly increased — registering over 1,000 patients, expanding facilities, and securing $3 million in further financing.
For an investor desiring to be a part of the marijuana delivery sector, OrganiGram offers more backbone and diversity than smaller startups like Eaze, Nugg, and Meadow.
Canadian health officials estimate that annual medical marijuana sales will exceed $1.4 billion by 2024.
Consider the Federal Law...
It seems like everyone rushing for the green is forgetting one very large elephant in the room: According to the United States Federal Government, marijuana is still considered an illegal substance.
Studies do show that the majority of Americans now approve of recreational marijuana legalization. The numbers show even more favor in regards to the medicalization of the drug.
However, this does not mean that the federal government will take action anytime soon in regards to nationwide legalization.
This makes for a pretty shaky situation, and it needs to be kept under consideration when you make your investment decisions. It’s especially important for newer firms, which might get hit with federal rules against “illegal drug” companies taking tax deductions. That means marijuana businesses end up paying taxes on gross, rather than net, profits.
...and the Banks
In order to grow a marijuana plant (or any plant for that matter), there are three big essentials: water, light, and soil.
In order to grow a marijuana business, the three big essentials are: a good idea, a good business plan, and the capital to fund it.
If you’re looking for a pure marijuana play, your company might run into the issue of access to capital.
This ties back to the whole “illegal” issue.
Banks, for the most part, have been acting with hesitation in regards to lending capital to marijuana companies. This should be part of your investment decision — pure play, or hybrid play?
Investors who would rather play it safe, but still be involved in the cannabis industry might want to go with a firm like Cara Therapeutics (NASDAQ: CARA). Based out of Delaware, Cara Therapeutics is one of the most exciting emerging biotechnology companies we’ve seen.
The firm focuses on developing innovative therapeutics to treat diseases or conditions associated with pain.
The market for pain relief is vast, as 100 million adults are affected by acute pain in the U.S. alone. Pain can be caused by surgery, injury, or illness. Unfortunately, the DEA-scheduled drugs that have been approved to treat pain often lead to serious side effects. Addiction, loss of effectiveness, nausea, drowsiness, and hypotension are just a handful.
Think: morphine and oxycodone. The abuse and misuse of these drugs has reached epidemic levels across the United States.
Cara Therapeutics’ drug, CR845, blocks pain and inflammation but eliminates side effects associated with current opioids and other pain meds. It is currently in phase 3 of clinical trials, and should move into the marketing phase in the near future.
Even more intriguing, though, is Cara Therapeutics’ CR701, a cannabis-based pain relief compound still in clinical development. The drug is still in the infant stages, but the company is not. Cara Therapeutics, because it’s classified as a bio-pharmaceutical firm, offers more stability than a pure marijuana startup, but also provides the innovation and development of cannabinoid products.
A similar business model exists in the agricultural sector, at Stevia, Corp. (OTC: STEV), a farm management firm that develops products for a healthy lifestyle.
You’ve probably heard of Stevia — the sweetener and sugar substitute that’s basically taken over the sugar industry.
Through its agricultural management and development of the stevia agronomics in Vietnam, Stevia Corp. now has solid relationships with Coca Cola, Pepsi, and Silk Light Soymilk products.
It's also connected to restaurants like Olive Garden, Red Lobster, and LongHorn Steakhouse.
But we’re not here to talk about sweeteners.
Last year, Stevia, Corp. expanded its agro-development model into the hemp industry. Like the stevia sweetener, hemp contains many properties that support the healthy lifestyle values behind Stevia Corp.
The company’s president released a statement, “As the public becomes more aware of hemp seeds and their health properties, there is increasing demand for hemp products. We intend to pursue products that contain both stevia and hemp which will appeal to the health conscious consumers.”
“Longer term we intend to leverage our farming and extraction technologies we developed for stevia and position the Company to be the major hemp player in the US.”
Fortunately for Stevia, Corp., 70% of the world’s hemp production takes place in Asia — a region where the company has already established farm management operations.
Just last month, the company released updated financial statements regarding its online store, Budget Hemp, under the Real Hemp LLC. The company reports success so far, and expects to generate $1 million in revenue in the next 12 months — solely from the online outlet. The site has received orders from 30 states, each averaging $10,000 total.
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