While the US election may still be disputed at the presidential level, there is no doubt that the medical cannabis sector was a winner. Ballot initiatives to legalise medical and/or recreational cannabis were passed in five states. Most significantly, New Jersey legalised cannabis for recreational use (it already permits the drug for medical purposes); this is expected to create a domino effect in neighbouring states on the heavily populated eastern seaboard.
As the sector gathers momentum in the US, the stage is set for the rest of the world to follow it on the path of legalising medical cannabis. Share prices have reacted positively to these developments but there is still tremendous upside.
Supplying the greenhouse
Hydroponics retailer GrowGeneration’s (Nasdaq: GRWG) expansion is directly tied to the proliferation of the US cannabis trade. The group’s products range from lighting fixtures and seeds to humidifiers. All large operators turn to GRWG to service their cultivation operations. The company exceeded revenue expectations in the third quarter of 2020 and has continually raised its sales guidance throughout the year as growth has been propelled by several tailwinds.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The industry is fragmented and GRWG has established itself as a reliable supplier for major operators across many regional markets in the US. We expect GRWG’s success to continue as the current environment of state-level cannabis legalisation supports long-term revenue growth trends.
Despite the challenges associated with Covid-19, Britain’s GW Pharmaceuticals (Nasdaq: GWPH) continues to enjoy increased adoption of its cannabis-derived drugs. Epidiolex meets a serious need in the field of epilepsy and the company expects strong growth for the treatment over the next few months.
The company has started advanced programmes for the treatment of multiple-sclerosis spasticity. It recently decided to accelerate several clinical-stage pipeline trials in this field. The current revenue base continues to grow thanks to the epilepsy treatment, but with its pace of research and development, GW Pharmaceuticals is well positioned to be a leader in several cannabis-derived drugs in the near future.
A saviour in the property sector
An interesting by-product of the current legal regime of cannabis in the US is the emergence of Real Estate Investment Trusts (Reits) as a source of financing in an industry hampered by regulations – the drug remains illegal at the federal level. With limited access to capital, the US cannabis industry has struggled to keep up with exponential demand; buying land and property for its production facilities has often proved problematic.
But it has found a saviour in the form of Industrial Innovative Properties (NYSE: IIPR). The group buys and then leases out properties to pot firms, helping them cut capital costs and make the most out of limited resources.
The current set of leases will be serviced at some of the highest rental rates for industrial properties in the country, reflecting the risk inherent in the tenants’ industry, but this also means investors are willing to ascribe a higher valuation to IIPR than to traditional Reits.
-
8 of the best houses for sale with annexesThe best houses with annexes – from a period property in the Lake District to a 13th-century house with a two-bedroom annexe in Saltwood, Kent
-
Zelenskyy moves to appease Donald Trump – what happens now?Ukraine’s president Volodymyr Zelenskyy is conceding ground to secure the least-worst deal possible, says Emily Hohler
-
Rolls-Royce stock jumps 15% – could it climb further?Aircraft-engine group Rolls-Royce’s CEO has been hailed as a hero for spearheading the firm’s recovery. And the future looks bright, says Matthew Partridge
-
The power of private marketsInterview Helen Steers, co-manager of the Pantheon International investment trust, tells MoneyWeek about the vast array of compelling opportunities in private equity
-
Vertex Pharmaceuticals is an uncommon opportunity in rare diseasesVertex Pharmaceuticals operates in a profitable subsector and is poised for further success
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
King Coal has not been dethroned yet — should you buy?The demand for coal is only growing, yet investors don’t seem to want to take advantage of the opportunity, says Rupert Hargreaves
-
It’s time to start buying Europe again, says Merryn Somerset WebbOpinion Europe's stocks are cheap and the economic backdrop is starting to look cheerier, says Merryn Somerset Webb
-
Prosus to buy Just Eat for €4.1 billion as takeaway boom fadesFood-delivery platform Just Eat has been gobbled up by a Dutch rival. Now there could be further consolidation in the sector
-
Should investors stay bullish and buy UK and US stocks?Opinion Ignore the Eeyores, says Max King. The outlook for stocks in both Britain and America remains auspicious
