A Bullish Perspective on Cannabis and Cannabinoid-Derived Pharmaceuticals

The global trend of cannabis legalization.

David Kideckel, PhD, MBA

The Launch of a New Industry Presents Incredible Opportunities
We believe the broader cannabis sector presents investors and entrepreneurs with remarkable exposure to growth opportunities, driven by the disruptive, innovative, and health-related benefits of cannabinoids. The sector as a whole remains in its nascent stages, both in Canada, and globally. We forecast the Canadian legal cannabis market to reach $10B in annual sales by 2025.

To date, there has been very little pharmaceutically-oriented research coverage of the cannabis space. With our research team’s unique lens of the Consumer Packaged Goods and Healthcare industries, we enter this space with key and differentiated opinions. As cannabis usage continues to gain wider acceptance from the public, as well as governments and regulators around the world, we believe that the growing trend of legalization will continue to sweep across nations. While the initial phase of legalization within a particular jurisdiction is likely to be exclusively medical usage, over the longer term, it presents the opportunity to transition to recreational usage.

Canada has already established itself as a first mover and a global thought leader with respect to cannabis legalization, after having first legalized medical usage in 2001, and recently becoming the first G7 nation to legalize recreational cannabis. We see this first-mover advantage as short to medium-term in nature, as we view the federal legalization of cannabis in the US as an eventuality. In the intermediate period, Canadian companies have the opportunity to establish global footprints, and take leadership positions in advancing and shaping new markets and policies, internationally.

Investment from Legacy Industries to Reshape the Sector in Coming Years
We also see the continued investment from legacy industries into the cannabis space as a catalyst for growth, as partnerships and acquisitions will inject new capital into the space, while simultaneously enabling cannabis businesses to expand their distribution, product development and R&D capabilities. The strategic involvement of mature firms in this industry will add credibility to the sector from the standpoint of the investment community, and provide the capability to leverage these large companies’ corporate infrastructure to operate at scale.

Risks and Volatility to Persist, But Worth the Upside
From a cost versus benefit perspective, we see the near term risks and volatility in the space as being worth the pay-off over the long term. To date, the majority of investment in the cannabis space has been retail dominated, which has been one of the drivers of the extreme volatility we have seen in the sector. As the industry establishes credibility, we believe more institutional capital will move into the space to take advantage of these opportunities, which should help bring greater stability to the sector from a capital markets perspective. The injection of institutional capital will also place greater importance on fundamentally driven analyst research as well as companies’ financial performance and results.

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