Investment opportunities surge as the cannabis industry differentiates and expands
AS THE STIGMA SURROUNDING CANNABIS CONTINUES TO ERODE, the nascent industry is attracting both high-profile talent and deep-pocketed investors from all corners of the world.
“There’s a heightened level of interest, now more so than a year ago,” says Matt Karnes, founder and managing partner of GreenWave Advisors. “The reality is setting in that this industry is real and there are significant opportunities associated with it from a business perspective as well as an investing perspective.”
Karnes points to executive talent migrating into cannabis from global brands like Procter & Gamble Company, Amazon Inc., and PepsiCo Inc., which is boosting the industry and doing some of the heavy lifting with regard to normalization. “Even Martha Stewart is stepping in,” he says. “How much more mainstream can you get?”
Karnes predicts that as more professionals from other industries move into cannabis, investors will feel more secure about the landscape. “Those professionals bring experience and expertise and it satisfies some of the boxes on people’s checklists who are looking to invest,” he says.
Recent regulatory decisions, including the signing of the 2018 U.S. Farm Bill, which legalized industrial hemp, and the Food and Drug Administration (FDA) approval of Epidiolex, an oral cannabidiol solution used to treat seizures and severe forms of epilepsy, have helped to legitimize the industry.
“When you reach that kind of status, you’re attracting a different level of coverage,” says Sam Oubadia, a portfolio manager with Lorne Steinberg Wealth Management Inc. “I’m talking about the Morgan Stanleys, the JP Morgans, the Goldman Sachs’, the Bank of Americas, the Merrill Lynch’s of this world.”
As the cannabis industry continues to pick up steam in the U.S., Canadian companies are looking at ways to penetrate the market south of the border. There’s a window now to build distribution networks and brand recognition and an opportunity to attract institutional investors, according to Oubadia.
“Several Canadian cannabis companies are listed in the U.S. Currently, these companies are generating very little revenue in the U.S., but they know they have to succeed in this market in the medium to long term,” Oubadia says. “If they are successful in doing business south of the border, then U.S. banks, analysts and subsequently U.S. institutional investors will all jump on the bandwagon.”
One company that is making inroads into the U.S. is The Yield Growth Corp. (CSE: BOSS C.BOSS), and its subsidiary, Urban Juve Provisions Inc. Urban Juve produces an Ayurveda inspired wellness line of topical and therapeutic products for men and women that contains hemp root oil. The hemp root oil is produced using the company’s patent-pending proprietary extraction method.
Urban Juve products are available for purchase online in both the U.S. and Canada and will soon be available in over 100 retail locations across both countries. Yield Growth is launching in Oregon in the U.S. next month via a distribution network of 400 retail stores.
The company is even moving beyond North America in months to come, with Urban Juve products slated to be available for purchase through China’s most popular messaging application, WeChat and to be featured in pop-up digital kiosks that will rotate through Hong Kong’s luxury shopping malls.
“Topicals and branded cannabis products have much higher profit margins than unbranded flower,” Yield Growth CEO Penny Green says. “Creating value-added high-quality products that deliver a reliable experience can actually produce the highest margins and build deep brand loyalty.”
Green says brand recognition is the next step for the industry and will further bolster investment. “In the early days of the green rush, it was enough to invest in a licensed producer (LP) to generate a decent return,” Green says. “Now, savvy investors are looking to invest in cannabis companies with experienced management teams, well-developed consumer brands, high-quality products and international distribution channels. The fact that Urban Juve products have been chosen by ipsy, the world’s largest beauty community, to be included in its Glam Bags, is a testament to the quality of it’s products.“
Ipsy is the world’s largest beauty community of over 3 million members with more than half a billion content views every month and relationships with more than 8,000 digital content creators. On this foundation, ipsy has built a highly personalized, monthly product subscription box service and e-commerce marketplace. Urban Juve has entered into a marketing and sales alliance with ipsy, who will include Urban Juve’s hemp-based beauty products in it’s Glam Bag and make them available for purchase on Shopper, ipsy’s exclusive e-commerce marketplace.
According to Karnes, a key factor over the next year that could impact the cannabis market across North America are any changes at the federal level in the U.S. In 2018, there was a downturn in the market in the wake of Attorney General Jeff Sessions rescinding the Cole Memorandum, which had stated that the Justice Department would not enforce cannabis prohibition in states that had legalized the plant. But a year later, Sessions is gone and the cannabis market in the U.S. is continuing to accelerate from key policy decisions, like the passage of the farm bill. Karnes says that the STATES Act is the next development to follow.
“That would basically give every state the right to decide their cannabis policies without fear of intervention by the federal government,” he says. The bipartisan legislation would protect states that have legalized cannabis and allow cannabis companies to interact more effectively with banks.
“At this point, in the U.S., the risk of a federal shutdown is pretty much nonexistent in my opinion,” Karnes says. “I think a lot of people now are waking up to that notion, when they see our allies in the north, in Canada, with full legalization and all these other states moving forward with their legalization programs.”
“Clearly, there’s tremendous growth potential.”
The Yield Growth Corp. (CSE: BOSS C.BOSS, OTC: BOSQF, Frankfurt: YG3) is dedicated to the rapid and sustainable growth of cannabis wellness assets. It develops, manufactures and distributes cannabis and hemp infused luxury product brands Urban Juve and Wright & Well and has a catalogue of over 200 wellness and beauty products in development. Its management and advisory team have deep experience with global brands including Johnson & Johnson, Procter & Gamble, M·A·C Cosmetics, Skechers, Best Buy, Aritzia, Coca-Cola and Pepsi Corporation. Its flagship consumer brand, Urban Juve, has proprietary, patent-pending hemp root oil extraction technology and formulas. Yield Growth is building sophisticated international distribution channels and has multiple revenue streams including licensing, services and product sales. Contact Invest@yieldgrowth.com
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