As investor attention continues to shift towards the US marijuana market, experts are debating the potential for Canadian firms to participate below the border.
During a panel at the recent Lift & Co. (TSXV:LIFT,OTCQB:LFCOF) Cannabis Expo in Toronto, a variety of participants discussed the opportunities available for companies and investors when it comes to the exponential growth seen and forecasted for the US marijuana space.
Currently marijuana remains illegal at a federal level in the US, and this is preventing Canadian producers from participating there. However, there are still opportunities available to leaders in Canada.
Greg Engel, CEO of OrganiGram Holdings (NASDAQ:OGI,TSXV:OGI) and a speaker at the panel, said that, while his firm won’t operate in the US, there is a viable way for the company to set up a cannabidiol (CBD) business thanks to the legalization of hemp.
“As we saw at the (US Food and Drug Administration) public hearing … there is still some uncertainty around CBD,” said Engel. “So when you look at the market you have to look at where the opportunity is, not only today but in the future, and our approach is how do we enter through technology.”
Finding the right American companies to partner with or work alongside can also help companies break through to the US market when the time comes for a legal entry.
This is a strategy Jeannette VanderMarel, co-CEO of 48North Cannabis (TSXV:NRTH,OTC Pink:NCNNF), said her company is using.
“We (are partnered) with several US companies to bring well-known brands from the US and take their IP, their technology, their scientists and help them replicate those products in our facility using Canadian cannabis,” she explained.
For VanderMarel, brand awareness is a key focus of pre-legalization efforts in the US. She believes developing brand curiosity and loyalty is beneficial and may provide companies with an edge.
Acquiring companies that make devices or equipment that are used in the sector but are not directly related to cannabis is another way to build a profile in the US.
“There are ways to work within the regulations, but you cannot be cannabis-touching anywhere in the US. I respect the laws of every country we live and work in, and it’s really important to not come anywhere touching that line,” VanderMarel said during the panel.
Morgan Paxhia, managing partner and co-founder of San Francisco-based Poseidon Asset Management, said the fractured nature of the US market creates challenges due to the different regulations.
He noted that right now, as various states like Illinois work through their own regulations, the US market is even more opaque than usual, subject to change at any given moment. “Every state looks so different,” said Paxhia. “And when you get into that market it can look so different in just a couple months’ time.”
He explained how California, a market he is especially invested in right now, offers a view of a state with several ongoing and changing sub-markets.
“(The San Francisco, LA and San Diego markets) are all very different, and how they are evolving is all different. It’s so driven by the regulatory framework,” Paxhia said.
Despite interest in the US space from the investment market, Paxhia said Canada still has a lot of opportunities thanks to the depth of capital in the cannabis industry, along with the innovation seen.
“From Canada’s perspective, this could be the hotbed of innovation for delivery,” he told the audience. “Whether it’s medical, transdermal, topical or a tincture, or any other kind of delivery, I think there is just so much opportunity to develop that here because so much infrastructure has been established.”
When the US will legalize cannabis on a federal level is hazy, but what is crystal clear is that the cannabis industry in America — as fragmented as it may be — is offering investors a new growth sector thanks to investment in multi-state operators.
During a panel at the Lift Cannabis Business Conference, a component of the expo, Vivien Azer, managing director for consumer research in the beverages, cannabis and tobacco markets for Cowen (NASDAQ:COWN), said she could see the current US administration moving forward with a cannabis program before the next elections in 2020.
Azer explained that if the numbers for US President Donald Trump dip in the lead up to the next election, he could employ a precise deployment of the STATES Act or some other cannabis legalization program to help get re-elected.
The STATES Act is a proposed bill that would create protections at the federal level for operations made legal by policies at the state level.
In the meantime, investors looking to get into the US market should look for companies that are closely adhering to all regulations, while simultaneously preparing for legalization.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
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