CannabisNewsWire
Editorial Coverage: Profitability and more widespread legality
are drawing fresh investment to the cannabis sector.
- Major investors and outside companies are putting big money
into cannabis.
- Undervalued companies provide good opportunities for new
investors in the sector.
- Following the legalization of recreational cannabis in Canada,
companies in the United States are seeing even larger market
caps.
- As attitudes change, more cannabis companies are expected to
soon be listed on major U.S. exchanges.
With a strong pick-and-shovel strategy alongside recent direct
investment in cannabis, Generation Alpha, Inc. (OTCQB:
GNAL) (GNAL
Profile) is among the cannabis companies seeing good
growth. Tilray, Inc. (NASDAQ: TLRY) is moving to
benefit from fresh investor interest through public offerings in
Canada and the United States. Canopy Growth Corp. (NYSE:
CGC) (TSX: WEED) has benefited from a substantial
investment from Constellation Brands, Inc. (NYSE:
STZ), the result of a trend in which U.S. alcohol and
tobacco companies eye up cannabis. The industry’s upward trend is
also reflected in the soaring revenues of Cronos Group,
Inc. (NASDAQ: CRON) (TSX: CRON).
To view an infographic of this editorial, click here.
The Mainstreaming of Cannabis
A state-legal cannabis industry has existed in North America for
more than 20 years. Since the legalization of medical marijuana in
California in 1996, the industry has spread at a growing rate. The
majority of U.S. states now allow its sale for medical purposes.
One-fifth of the states, plus all of Canada, have legal
recreational cannabis markets. Yet the cannabis industry remains on
the fringe of the American economy, largely separate from the work
of mainstream businesses and investors.
That’s now changing. Growing numbers of investors are putting
money into cannabis, cannabis companies are able to raise
substantial capital for growth initiatives, and large enterprises
have taken an interest in cannabis-focused ventures with a view to
establish partnerships and make investments. With these changes,
cannabis becoming fully integrated into financial markets appears
to be a logical next step.
The Acceptable Face of Cannabis
Over the past few years, the cannabis industry has seen growing
acceptance of its place in society and the economy. This is due in
no small part to the professionalism of the companies working in
the sector, including companies such as Generation
Alpha, Inc. (OTCQB: GNAL).
Generation Alpha started out as a support provider for the
cannabis industry, taking a basic supply approach to the business.
A vertically integrated technology innovator, the company
developed, manufactured and distributed products and solutions for
cannabis growers, which were springing up across the United States.
As a supplier of horticultural and lighting equipment, GNAL
provided essential supplies that cannabis cultivators relied on to
grow their businesses.
Generation Alpha has seen rising investment in its organization.
As recently as April, it announced a $25 million in
investment from an existing shareholder under its previous name
of Solis Tek. Other cannabis companies have also seen substantial
investments over the past year.
The most practically and symbolically significant is the
investment of $4 billion in
Canadian company Canopy Growth by American beverage giant
Constellation Brands. Not only does this move represent a huge
financial boost for the company, but it also signifies an important
moment for the entire industry. This massive investment from a
beverage manufacturer reflects the growing interest of tobacco and
alcohol companies in cannabis and their willingness to risk money
in a relatively new industry, possibly signifying a bigger wave of
change coming down the line.
Undervalued Assets
There’s a marked disparity between Constellations Brands’
investment in the sector and that recently received by Generation
Alpha and other cannabis brands. The reason is likely because
Constellation has recognized what others have not — many cannabis
companies may be undervalued.
It’s hard to judge the value of assets in an industry that’s
going through such big changes. But looking at the fundamentals,
it’s easy to spot places where value may not yet be recognized.
Generation Alpha’s move into cultivation and processing of
cannabis is an example of this. The company recently acquired a cultivation and processing facility in Phoenix,
Arizona. GNAL is using its experience in the support side of
the industry to turn this
70,000-square-foot space into a technologically advanced growing
facility. With the site scheduled to become operational in the
first half of 2019, the profit from this is decision should soon be
realized.
The recent legalization of recreational cannabis in Canada this
October showed the stark imbalance between supply and demand in the
cannabis market. Within weeks, the country was facing a cannabis shortage as consumers rushed to
enjoy a legal high. Similar patterns are likely to play out in U.S.
states as legalization — whether for medical or for recreational
purposes — spreads across the country. If, as many expect, U.S.
Attorney General Jeff Sessions’ departure leads the Trump
administration to a more liberal stance, then rising demand is even
more likely, ensuring both an eager market and a good price for the
product coming out of Generation Alpha’s facility.
And then there’s the long view. Big businesses now have a vested
interest in cannabis. This interest will naturally lead to heavier
lobbying for reform of anti-cannabis laws; not just in the United
States, but around the world. The next decade will likely be a time
of huge global growth for the industry, thanks to social and
political change. The value of companies such as Generation Alpha
could grow significantly as these pioneering cannabis companies set
their sights on becoming the backbone of a mature global
industry.
The Canada Effect
Events in Canada provide the surest signs of the coming
shift.
As the first G8 country to legalize recreational cannabis,
Canada is setting an example for the world, converting cannabis
consumption from a drain on law enforcement into an asset that
provides tax income for the government. The change hasn’t just
affected Canadian companies; it has also touched those in the
United States, including Generation Alpha. Both north and south of
the border, the market cap for cannabis has grown as investors
strategically place their money into the burgeoning industry.
Canada is now leading the way in cannabis. While it might take
time for the United States to catch up at a federal level, American
companies are already feeling the benefits.
Onto the Exchanges
All this growth means more companies listing on major markets.
Together with a broader social shift in attitudes towards cannabis,
a change at the top of the economy is extremely likely. As the
power of cannabis companies grows, it’s surely only a matter of
time before major U.S. exchanges add more American cannabis
companies. With that, these companies will be able to tap into even
more resources through the finance of major investors. And once the
inconsistency between federal and state law is addressed, major
banking will add another route to funds.
Companies with strong, proven strategies will be best placed to
benefit from this surge in funding. With its core pick-and-shovel
strategy, Generation Alpha fits the bill. By supplying goods and
services to cannabis growers, GNAL will be ideally positioned to
profit from the growth while keeping a buffer between its core
business and shifts in the price of cannabis. With innovations such
as its high-efficiency LED
lighting system, the company will be a strong competitor among
other cannabis support companies.
One of the companies looking to turn cannabis’ credibility into
financial resources is Tilray, Inc. (NASDAQ:
TLRY). A prominent provider of medical marijuana, Tilray
has used a well-developed research and design program to gain an
edge in the fast-growing industry. It’s currently using public offerings in Canada and the United States to
seek fresh funds from investors, but its ambitions aren’t limited
to North America. The company has customers on five continents,
thanks to the growing international acceptance of medical
cannabis.
Through early moves in the sector, Canopy Growth Corp.
(NYSE: CGC) (TSX: WEED) has established itself as one of
the big names in Canadian cannabis. Working both alone and in
partnership with others, Canopy Growth has evolved into a
multifaceted company with a strong investment in brand and product
differentiation.
Canopy Growth Corp. made news earlier this year when it received
a second substantial round of investment from U.S. beverage company
Constellation Brands, Inc. (NYSE: STZ). That $4
billion investment has made Constellation Brands a substantial
shareholder in Canopy Growth, owning a third of the company. The
investment was a major coup for the cannabis company, giving it the
sort of resources that most of its competitors only dream of. But
it may also prove to be an important moment for Constellation
Brands, as it adds cannabis and cannabis-infused products to its
repertoire of alcoholic drinks.
As tobacco and alcohol companies look for ways to deal with
their own falling sales, it’s likely that a growing number will
turn to cannabis, providing fresh investment for the market. When
they do, there will be plenty of strong options. The growth of
medical and recreational markets has led to impressive revenue
growth for companies. For example, Cronos Group, Inc.
(NASDAQ: CRON) (TSX: CRON) saw revenues
increase by 186 percent in the third quarter of 2018. By
partnering with other businesses, increasing its cultivation space,
and getting involved in the Latin American cannabis market, the
company has been able to keep expanding its operations.
Big money is flowing into the cannabis industry. As its prestige
rises, those funds are set to keep growing for a long while
yet.
For more information on Generation Alpha, visit Generation
Alpha, Inc. (OTCQB: GNAL)
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