When you invest early in a revolutionary trend – and I definitely recommend that you do – you’re going to see parabolic rallies… and sizeable pullbacks. That’s just a fact. It happened with the internet, with biotech, and this year it happened with cannabis.
The ETFMG Alternative Harvest ETF, which cleverly uses the ticker “MJ,” hit a yearly high in March… then moved 35% lower.
Many of the fund’s biggest stock holdings are from Canada, where marijuana is fully legal on the federal level. So, news that Canadian cannabis sales had stalled out in January (then again in February) haven’t helped those stocks.
The early highs brought plenty of new cheerleaders for marijuana stocks. Then, of course, the weakness turned those folks into doubters.
But even the haters will have to admit — the latest data is pretty impressive:
From monthly sales of 49 million Canadian dollars in February (according to Statistics Canada) sales quickly got back to CA$54 million in March (which was the January level). Then they just kept chugging higher! Monthly sales came in at CA$67 million in April… CA$79 million in May… and CA$85 million in June.
That’s 73% more sales than what Canada saw just four months prior.
And, in the big picture, CA$85 million is nothing! It’s just the tip of the iceberg.
According to Arcview Market Research and BDS Analytics, worldwide, we’re looking at sales of $10.9 billion in 2018 — which will reach $40.6 billion in 2024. Where else can you find a sector that is expected to grow 272% in six years?
And 86% of those sales will come from North America: $34.8 billion of the $40.6 billion globally.
Now, even these projections might be lowballing it! They assume that marijuana will remain illegal at the federal level here in the United States. So, to me, the most exciting part of investing in marijuana is that when U.S. legalization happens, the market is going to be so much bigger.
The Size of the American Opportunity
Last year was when Canada transformed itself from the Great White North, as it is often referred to, into the Great Green North. It became the first major country to fully legalize marijuana on all levels. The move had been in the works for years, and when it finally came to fruition in October 2018, it made a lot of people a lot of money.
The largest marijuana company in the world, Canopy Growth (CGC), is based in Canada and now worth $13 billion. In fact, the five biggest marijuana companies in the world are in Canada, which is clearly the early leader in the booming industry.
Canopy Growth is a great example of a stock that could have made average investors a lifetime of profits. It went public five years ago in April 2014. Since then, it has been one of the best performers in both the U.S. and Canada. It took two years before the stock started its parabolic rise, but that’s not unusual. It’s why we invest for the long term – to make sure we capture those kinds of profits.
The chart below shows Canopy’s market cap along the way. During the first half of 2014, the company was worth a mere $20 million. By September 2015, it had tripled but was still valued at just $61 million. Today, Canopy Growth is worth more than 200 times that at around $13 billion.
This one company has already created billions in wealth for its shareholders. There are many more Canadian marijuana companies that have grown from microcap stocks worth less than $100 million to valuations well above $1 billion.
With marijuana illegal in the U.S., stocks based here are still in the earlier part of that chart. There are major limitations on how marijuana companies do business. These limitations result in the stocks trading at a major discount to their Canadian peers.
To give you a sense for just how discounted U.S. stocks are, look at the chart below. It shows the forward price-to-sales (P/S) ratio of four of the largest Canadian marijuana stocks compared with the forward price-to-sales ratio of four of the largest U.S. marijuana stocks. The majority of marijuana stocks are not yet profitable, so price-to-sales is a better assessment of value than price-to-earnings.
As you can see, Canadian marijuana stocks trade at a huge premium to U.S. marijuana stocks. The gulf in valuation is due to differences in federal regulation.
In general, big U.S. marijuana stocks are valued at about 14% of their Canadian peers. This is absolutely crazy to me. But I absolutely love it because it’s a huge opportunity.
The California marijuana market alone is bigger than all of Canada… and it’s growing. If and when U.S. legalization occurs, this country will immediately become the largest market in the world. In fact, it will be bigger than the rest of the world combined.
Even if legalization takes longer than I anticipate, the gap in valuations will lessen in the next 18 months. That’s why U.S. marijuana stocks are one of the best buying opportunities in the entire market, not just the cannabis sector.
It’s good news for marijuana companies that Canadian sales have reached new highs, but U.S. sales will dwarf that number and smart investors are making their moves now!
P.S. One of my top picks in the Investment Opportunities portfolio is a unique type of investment in the red-hot marijuana market.
It could realistically multiply your money several times over in the coming years… if you take part soon… before August 29.
The company is part of an incredibly rare phenomenon that has only occurred a small handful of times in the past few decades – in other industries. But on many occasions, it’s resulted in an explosion of wealth so incredible, the numbers almost seem made up.
The first time we saw it was in 1983 when it returned early investors as much as 45,300% gains!
Incredibly, there is that opportunity once again, right now… in the booming marijuana market.
This is so important that I put together a presentation with all of the details on this rare opportunity and why you need to act now. Click here to learn all about it.
Matt McCall’s MoneyLine Podcast
Click here to listen to Matt McCall’s MoneyLine podcast! This week, Matt talks about the “Shopify of China” and why it could be a 10-bagger in the future. He also discusses two recent earnings reports that cannot be ignored.
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