After what was easily the hottest year for cannabis stocks, expectations on the legal marijuana related sector are higher than ever.
What remains to be of concern, is how this rapidly developing sector can maintain its growth into the future.
Of the dozen main players in the space, the average marijuana stock is up 332% over the past year.1
The overall optimism led researchers at New Frontier Data to project that the cannabis industry will have created a whopping 283,422 jobs, grow to and generate $2.3 Billion in tax revenue—both by 2020.2
The same study predicted that the sector as a whole will grow to $24.1 Billion by 2025.
But in order to maintain the course in order to get to $24 Billion, here are 3 Cannabis Trends That Will Ensure the Sector’s Meteoric Rise (and the example companies that go with them)
– Our first and favourite sector may surprise you because it is not actually the cultivation sector, it’s going to be way bigger, and we’ve found a company that is literally untouched as noted below in our first example –
BETTER TESTING AND EXTRACTION
Mkt Cap: $15.21M
Still very early in its company’s story, Abattis has wisely burst onto the scene as a tester. Wasting no time in getting its cannabis testing facility opened in Langley, BC, ahead of Canada’s full-scale legalization4 of cannabis expected by July 1, 2018, Abattis swiftly got itself into the game and already has garnered revenues.
Abattis Bioceuticals’ subsidiary Northern Vine Labs opened its doors in May 2017, to serve the rising demand for cannabis testing. The company had been pursuing that license since 2014, and officially became licensed in October 2016.
What is cannabis testing?
In order to maintain quality control, and meet both regulatory, and market demands, cannabis laboratories test for potency, purity, and details such as terpene counts. Testing also protects the consumer by screening for contaminants such as bacteria, heavy metals, and unapproved pesticides.
(For more information on Health Canada’s mandatory testing on medical cannabis click here. )
For the 52 licensed producers in Canada, Health Canada introduced random testing to address these issues. Abattis’s facility is just 1 of 30 approved facilities in Canada, and one of the eight in BC’s lower mainland. Even better, Abattis is the only company available on the public markets, making it a solid choice in this sector. Once recreational cannabis becomes available in mid-2018, everyone will have to use a facility like what Abattis already has a leg up on, so keep that in mind while the PPS is low here.
So what exactly is the demand for cannabis testing like?
The global cannabis testing market is expected to grow at a compound annual growth rate of 11.5%, culminating towards a $1.42 billion market by 2021.5
In order to hit the shelves, producers will need to have an accurate depiction of the drug’s potency, including the levels of the most sought after medicinal components of cannabis, THC and CBD. To do that, even the mega producers will require a third party to test their product before it goes to market.
Abattis is smartly staking itself as a leader in the testing field, having built a lab, and staffed it with industry experts to ensure the quality standard they promise the sector.
The Northern Vine Labs facility will not just be used for testing, however. Another major component to the facility will be in extraction and formulation.
This means that the company will be involved in innovation of methods to extract medicinal components from cannabis on a massive industrial scale, and to formulate them for consumer products.
As a cooperative arm of the company to run in conjunction with Northern Vine Labs, Abattis has formed another subsidiary called Vergence, in order to market and sell natural, safe, and effective health products.
Those products will target reducing pain caused from inflammation, boost immunity, and increase nutrient absorption. As natural remedies, these products will likely reach the market faster than a pharmaceutical product would, without the lengthy and costly clinical trials.
According to the CBD Report published by The Hemp Business Journal, the US hemp-derived CBD market will total approximately $115 million this year, with an estimate to grow to $2.1 billion by 2020.6
Abattis is tight-lipped about its ability to extract cannabinoids and terpenoids from cannabis at its facilities, however, it hasn’t been shy about hinting that it aims to be a leader in the extraction space. There’s a possibility that extraction will overtake testing as the company’s primary revenue model in the future.
MORE MEDICAL USES
Company: Cara Therapeutics (CARA)
Mkt Cap: $495M
After a wild month that saw Cara Therapeutics rise to $26 per share, and plummeting to $12 per share within a week, this giant is on its way back to stardom.
The bounce back came on the announcement of encouraging data from its phase 1 trials of oral CR845, as a treatment for pain and itching in patients with chronic kidney disease and undergoing hemodialysis. All tested doses were well tolerated when administrated daily.
This came as a relief for shareholders after they saw the value of the company drop upon the same drug’s treatment for patients with osteoarthritis (OA) of the hip or knee. Lower doses achieved statistical significance. Only the highest dose received statistical significance. It’s still possible based on those results to test higher doses for significance.
Medical marijuana sales, from pharmaceutical extracts to medically cultivated flowers, currently make up the lion’s share of the cannabis sector. Medical sales in 2017 are projected to grow to $5.3 billion in 2017, and account for 67% of total cannabis sales.2
That means that medical cannabis patients are outspending adult-use consumers at a nearly 3 to 1 basis.
While medical sales are projected to exceed $13.2 billion by 2020, the medical share of the total cannabis sales is expected to drop to 55% of all sales as well.
Much of that has to do with the recreational legalization in larger states, like California, and in holiday states like Nevada.
As cannabis stocks fly, the developers of new medicinal applications and products stand to make the most gains.
While Cara fluctuated during its trials, new drug development was the reason that AXIM Biotechnologies (NASDAQ: AXIM) absolutely crushed it in 2016-17.
As stated earlier, the average marijuana stock rose 332% over the last year.
Much of that increase is skewed by the meteoric rise of AXIM Biotechnologies, whose year-over-year increase was 2,363%.
You read that right.
A large portion of that success can be attributed to the development of AXIM’s CanChew Plus Chewing Gum, used for the treatment of irritable bowel syndrome—or IBS. Used as an alternative delivery system to inhalation, CanChew tapped into the act of chewing which bypasses the gastrointestinal system and improves the bioavailability of cannabinoids.3
Because medical uses for cannabis are still in their infancy, there are plenty of repeatable AXIM-like stories out there yet to be told.
ENSURING A SUPPLY CHAIN SURPLUS
Aurora Cannabis – ACBFF, ACB
Mkt Cap: $941.6M
Second only to Axim over the last year was top performer Aurora Cannabis (NASDAQ:ACBFF)(TSX: ACB), which grew 465% year-over-year, rising from a low of $0.30 to $2.59 and a market cap just a shade under a Billion, at $941.6 million.
The company’s well deserved move to the TSX from the TSX venture this week is a pat on the back for a solid year that included record yields at Aurora’s Mountain View County production facility, and on the anticipation of the opening of its 100,000+ kg Aurora Sky facility to be located near the Edmonton International Airport.
With the nearing completion of a third production facility in Pointe-Claire, Quebec, Aurora’s production capacity is skyrocketing.
But supplies are still lagging in the market as a whole, especially after shelves emptied rapidly in Nevada after the state began adult-use sales on July 1.
Supply issues reached such dire levels, that Nevada Governor Brian Sandoval had to issue a state of emergency to allow state officials to decide on new rules to ease the shortage.7
As Canada (where Aurora is headquartered) inches closer to nation-wide marijuana legalization, it’s doubtful that the country will encounter the same scale of supply problems that hit Nevada.8 Especially with massive production coming from companies such as Aurora.
With other major Canadian producers, such as Canopy Growth Corp. (TSX: WEED) growing for both the North American and German markets, it’ll be interesting to see how supplies meet demand on a global scale.
As a medicine, cannabis has still not been registered as a medicine in any country, and only a small number of cannabinoid medicines have reached the market.
With over 100 cannabinoids, and over 700 other compounds such as flavonoids and terpenes, the cannabis plant is still barely understood, as the legality over researching it, and testing its benefits has provided hurdles until recently.9
Public perception of the drug has changed significantly over the past decade, with it being seen more favourably than ever.
According to a survey2 done by New Frontier Data and Full Circle Research this January, 55% of respondents believed “cannabis should be legalized, regulated and taxed like cigarettes and alcohol”, and an additional 26% believed it should at least be “legal for medical use with a doctor’s recommendation.”
In fact, only 9% responded that cannabis should be illegal. Overall, 63% of those surveyed believed that the federal government should legalize cannabis, and 86% believed it has valid medical uses.
In 2016, 4 out of the 5 US states that voted on adult-use of cannabis passed legalization initiatives, with an average adult-use vote of 53% in favour. And all 4 states that voted on medical use passed their initiatives, with an average medical use vote of 62%.
For those that still hold doubt to the growth potential of the cannabis sector, there’s really nothing that will convince you. Sales are growing significantly for retailers, even as more retailers hit the scene.
In order to maintain this growth pattern, industry players will need to provide the market with More Medical Uses, Better Testing and Extraction, and to Ensure Supplies.
For American News Group
By G. Joel Chury
Edited by; American News Group Editorial Staff
1 – Motley Fool (July 2017) – The Average Marijuana Stock is up 332% over the past year
2 – New Frontier Data – The Cannabis Industry Annual Report: 2017 Legal Marijuana Outlook
3 – YAHOO! Finance – AXIM Biotech: Cannabinoid Potential Worth the Complexity
4 – Toronto Star – Trudeau government to legalize marijuana by Canada Day 2018: reports
5 – Markets and Markets (March 2017) – Cannabis Testing Market by Product & Software (LC, GC, Spectroscopy (MS, Atomic), Column, Standards, Accessories, LIMS), Service (Potency, Pesticides, Heavy Metal, Genetic Testing), End User (Lab, Pharmaceutical, Research) – Global Forecast to 2021
6 – Hemp Business Journal – The CBD Report
7 – Fox News (July 2017) – Nevada marijuana supply running low, state of emergency declared, governor says
8 – Fortune Magazine – Here’s Why Nevada’s Marijuana Supply Can’t Keep up with Sales
9 – The Medicine Maker (June 2017) – Cannabis Complex