In October 2018, Canada made history by officially legalizing the sale of cannabis for recreational use across the country. However, the legislation was not all-sweeping and all-encompassing, as the green light was only given to dried cannabis flower, cannabis oil, and sublingual sprays. This means that many popular derivatives such as edibles, infused beverages, and vapes are still technically illegal. However, October 17 marks the first birthday of legal weed in Canada and the anniversary will see the launch of legalization 2.0, which will finally allow for the sale of these highly sought after derivatives.
Legalization 2.0 is very highly anticipated by Canadian cannabis firms, and it's definitely something to sit up and take notice of if you're thinking of investing in cannabis stocks. This legislation paves the way for a whole spectrum of new sectors to open up within the industry, particularly among young people who are eager for an alternative to smoking cannabis. Since the first wave of legislation, the Canadian cannabis market has really underwhelmed; amid numerous scandals, disappointing consumer pickup, and a highly condensed market, it just hasn't really had the gold rush-like effect that many thought it would.
Legalization 2.0 looks set to change that as it will allow cannabis firms access to a massive new market of previously unreachable customers and from a stock perspective, it's definitely something worth getting excited for. So, as an investor, you're probably asking what areas of the market and what companies you should be looking out for. Well, let me tell you:
Valens GroWorks (TSXV:VGW) (OTCQX:VGWCF) is a market front-runner in cannabis extraction, and an obvious choice for investment as legalization 2.0 comes closer. The demand for extracts and edibles is actually growing faster than the sector as a whole can keep up with. Valens' client list boasts some of the biggest names in the industry, with Canopy Growth (TSX:WEED) (NYSE:CGC), HEXO (TSX:HEXO) (NYSE:HEXO), and The Green Organic Dutchman (TSX:TGOD) (OTCQX:TGODF) all sourcing their cannabis extracts from the company. Added to this an extraction capacity in excess of 240,000 kilograms/year, legalization 2.0 is exactly what Valens needs to go stratospheric.
The company's most recent Q2 report stated revenues of $8.8 million CAD, which is an eye-watering increase of 296% from Q1. Gross profit was also up about 20%. Valens stock is currently valued at $2.64 per share, which is down about 27% from a 52-week high of $3.65. So with booming revenues, a reasonably valued share price, and a whole new market about to open up before it, Valens GroWorks looks like a very strong stock to watch ahead of legalization 2.0
BevCanna Enterprises (CSE:BEV) (OTCPK:BVNNF) is a Vancouver-based company that is aiming to become the global leader in cannabis-infused drinks, another sector with huge potential. Having just been granted a research license by Health Canada to test cannabinoid infusion equipment on its production line, BevCanna looks all set for a 2020 commercialization commencement.
The company also boasts "decades of experience creating, branding and distributing iconic brands that have resonated with consumers on a global scale," so you know your investment is in safe hands. At just $0.57 per share, and with commercialization still a year away, BevCanna Enterprises looks like another stock to watch right now.
Cronos Group (TSX:CRON) (NASDAQ:CRON) is one of the biggest names in the industry already, but legalization 2.0 has everything Cronos needs to get even bigger. Cronos plans to focus the majority of its production on derivatives, in particular, vapes, and following a $1.8 billion USD equity investment from tobacco heavyweight Altria (NYSE:MO), the company has all the capital it needs to do that. The Altria partnership is notable because just last December, it also made a massive $12.8 billion USD investment in vape manufacturer Juul, the most popular vape company in the US.
Vapes and vape products will be one of the biggest sectors to expand out of legalization 2.0 due to the fact that it offers a cleaner alternative to smoking and Cronos Group is extremely well-positioned to take advantage of this. With a share value of $15.63 CAD, down over 50% from a March high of $31.77 CAD, now looks a very good time to be watching Cronos stock before it takes off again.
So that's our crash course guide on what legalization 2.0 is actually going to do to the market, and which companies look set to benefit the most. The only question now is, will you be paying attention to these stocks?
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