What you need to know about the marijuana market
The world has had a complicated relationship with marijuana. Many countries hardened their stance against the drug throughout the 1900s by banning the substance, but the attitude has softened since the turn of the century as more countries explore the potential health, social and commercial benefits of legalising and regulating the cannabis market.
Medicinal vs recreational marijuana
There are two distinct parts of the marijuana market.
The first is medicinal marijuana that aims to provide new medicines and products aimed at helping people with a variety of illnesses from epilepsy to muscle diseases. Medicinal marijuana only contains CBD, which has healing qualities but does not contain anything that gives users a high.
The second is recreational marijuana which contains CBD but also THC, the psychoactive compound of the plant that gives users a high sensation.
The international community has been more willing to explore the medicinal applications of marijuana compared to introducing a new recreational drug. Only a handful of countries such as Canada and Uruguay allow marijuana to be used for recreational use compared to almost 50 countries that have legalised medicinal cannabis in one form or another.
Although countries are embracing medicinal marijuana at a faster rate and the market potential is huge, the recreational market is where the largest commercial opportunity lies.
Marijuana industry outlook pinned to regulation
One of the biggest drivers of the nascent marijuana industry is regulation and adoption. The shift in acceptance of medicinal marijuana seems irreversible considering the number of countries that have legalised it and given the green light for more research to be conducted. Therefore, the medicinal marijuana market is considered safer and more stable ground compared to recreational cannabis, where the jury is still out in many countries.
The US, which is the biggest economy in the world, is the main country to watch. Many states have approved recreational use but it is yet to be given the green light on a federal level. This is considered a huge barrier for the market because, without federal approval, the threat that the market could be shutdown overnight remains a possibility. It provides an unclear stance from the government and limits the ability for the industry to develop by providing an uncertain outlook. US federal legalisation of recreational marijuana would be game-changing for the market.
There appears to be less appetite to legalise recreational marijuana in other major markets like the EU, although countries like the UK and Germany have become major hubs for the medicinal market.
Consolidation in the cannabis market
The marijuana market has come a long way, but it is still extremely early days. There are various parts of the market, from growing the plant and processing it to distribution and sales. We have started to see some vertically-integrated leaders emerge, but it is still a highly fragmented market. The fact Aphria and Tilray, two of the industry’s largest players, have agreed to merge together demonstrates the desire to scale-up and gain an edge over the competition.
We are also seeing significant interest from other industries keen to tap-into the growing market. Traditional pharmaceutical firms are paying more attention to the potential of CBD, reflected by Jazz Pharmaceutical’s bid for GW Pharma. We have also seen significant investments made by the alcohol and beverage industry that see an opportunity to create a whole new portfolio of drinks, and by the tobacco industry looking for a way to put their agricultural expertise to use.
Top cannabis stocks
Below is a list of the top cannabis stocks you can trade with Forex.com.
Aphria was founded in 2013 and has grown into one of the largest cannabis companies in the world. It began applying 60 years of agricultural expertise to grow cannabis and has expanded into other areas like processing and distribution, making it fully-integrated across the supply chain.
It grows cannabis in Canada, Colombia, Germany, Italy and Denmark. The company sells medicinal marijuana under the Aphria and Broken Coast brands and recreational cannabis under the Solei, RIFF, Good Supply, P’TITE POF and B!NGO brands.
Notably, Aphria has struck a deal to merge with Tilray to create the world’s largest cannabis company by revenue.
Tilray is another one of the big boys in the market that has expanded into other areas of the supply chain, involved in growing, processing and distributing products. It was the first manufacturer in the world to secure the all-important GMP-certification for its production sites, which sets an international standard.
Tilray produces cannabis in Canada and Portugal and exports around the world to the likes of the US, Ireland, Germany, Israel, South Africa, Australia and New Zealand.
Tilray is currently in the process of merging with Aphria to create the world’s largest cannabis company by revenue.
Canopy Growth became the first cannabis company to go public in North America back in 2014. Tweed is its largest brand and it uses Spectrum Therapeutics to sell its medicinal brands globally. It also sells other products like gummies, softgels and oil drops through its collaboration with Martha Stewart. Other brands include Houseplant, BioSteel, Tokyo Smoke, Deep Space, Twd, Quatreau, Simple Stash, LBS, DNA Genetics, DOJA, Van der Pop, Craftgrow and Maitri.
The company also has a strategic relationship with Constellation Brands, which is a major shareholder in the business, to develop new CBD-based beverages. Canopy Growth is one of the most diverse cannabis companies considering it has branched out it areas like food and drink and offers brands covering virtually every price point in the market.
The company sells medicinal marijuana through its Peace Naturals brand, recreational marijuana through COVE and Spinach, and has three hemp-derived CBD brands named Lord Jones, Happy Dance and PEACE+. Its operations are based in the US and Canada, but it has branched out to other countries using joint ventures with firms like MedMen.
Innovative Industrial Properties
Innovative Industrial Properties provides a different way to gain exposure to the cannabis market as it doesn’t produce marijuana but leases out properties used by the medicinal cannabis industry. Founded in 2016, the company became the first publicly-traded real estate firm catering to the industry.
The company buys industrial sites that can be used by the regulated medicinal cannabis market, buying properties and leasing them back to other companies seeking to maximise the amount of cash they have to grow, particularly as they can have a harder time securing finance through traditional channels. The company has almost 50 US-based properties on its books, all leased out to predominantly smaller licensed producers.
One major upside to Innovative Industrial Property over traditional cannabis stocks is the fact it pays out a dividend because it is a real estate investment trust, with 90% of taxable income being paid out quarterly.
Aurora was founded in 2013 and is among the largest players involved in all aspects of the industry, from growing the plant to distributing it. It produces cannabis from facilities in Denmark and Canada, underpinned by its largest site, Aurora Sky in Edmonton, which accounts for around two-thirds of its capacity.
Its primarily focus is on the medicinal markets in Canada, the EU and a few other countries but is a growing player in the recreational space in both Canada and, more recently, the US.
The company sells medicinal cannabis through its CanniMed, MedReleaf, Aurora and WMMC brands, and sells recreational products through San Rafael, Daily Special, Aurora Drift, Whistler Cannabis, AltaVie and Woodstock. The Canadian company broke into the US CBD market in 2020 by acquiring Reliva.
How to trade marijuana stocks
You can trade all the marijuana stocks mentioned in this article with Forex.com using CFDs.
Follow these easy steps to start trading the opportunities the market has to offer.
- Open a Forex.com account, or log-in if you’re already a customer.
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Cannabis Index: a better way to trade the marijuana sector?
There is an alternative, simpler and lower-risk way of trading the marijuana market than trying to pick the winners and losers among individual stocks. You can instead decide to take a basket-approach by trading City Index’s Cannabis Index.
Our Cannabis Index is based on the BITA Global Cannabis Giants Index and tracks the performance of 20 of the largest cannabis stocks from around the world, including all of the individual stocks mentioned in this article.
Trading the Cannabis Index means you can speculate on the market as a whole rather than individual players, which comes with added risks.
To trade the index simply log-in and search for ‘Cannabis Index’ in our platform.
Below is a list of the constituents of our Cannabis Index by their weighting:
- Aphria (19.06%)
- GW Pharma (15.35%)
- Canopy Growth (12.76%)
- Cronos Group (12.73%)
- Innovative Industrial Properties (9.50%)
- Tilray (9.27%)
- Aurora Cannabis (6.59%)
- Sundial Growers (3.32%)
- Hexo (2.79%)
- Organigram (2.29%)
- Charlotte’s Web (1.74%)
- cbdMD (0.67%)
- Corbus Pharmaceuticals (0.61%)
- Neptune Wellness Solutions (0.60%)
- Zynerba Pharmaceuticals (0.58%)
- Auxly Cannabis Group (0.51%)
- Valens Groworks (0.51%)
- Green Organic Dutchman (0.39%)
- Akerna (0.38%)
- MediPharm Labs (0.27%)