Get it? High-er. Haha ah, love a good pun.
Turns out the devil's lettuce isn't so bad. It's proven to be one of the worst cases of propaganda we have ever witnessed. Harry J. Anslinger, the first commissioner of the Federal Bureau of Narcotics, insisted that marijuana led to "insanity, criminality, and death" in 1931, which was then followed up with the film "Reefer Madness" in 1936. By 1937, Congress passed the Marihuana Tax Act (yes, spelled correctly), effectively criminalizing weed. And here we are in 2021, with people still believing the lies.
As of this writing, weed, cannabis, marijuana, mary jane, whatever you want to call it - is still not federally legal. It's 2021 and weed is still considered an illegal schedule 1 narcotic. Can we pull our heads out of our asses and get this changed already?
At least several states have wised up. A total of 18 states, plus Washington D.C., have legalized recreational weed. We believe this trend continues and it is only a matter of time before weed is federally legal. In fact, the Senate has recently proposed legislation to decriminalize marijuana.
With the changing tides, we believe this market has huge potential. In the U.S., the legal market is projected to pull in $43 billion by 2025. Globally, the market is expected to be valued at $90.4 billion by 2026. For these reasons, we have been investing in the cannabis sector since 2018 and will continue to well into the future. We don't know who will emerge as the leader in the space, so we have cast a broad net. Our largest holdings are Canopy Growth, Tilray (formerly Aphria) and Innovative Industrial Properties.
Canopy Growth is currently the leader in the sector, in terms of market cap, partnerships and production capacity. Competitors are gaining ground, but we believe Canopy can continue to hold the crown. You see, Canopy is a Canadian company, where weed was legalized in 2018. For the first time in history, legal marijuana spending topped black market spending in 2020. This trend is only going to continue as distribution restraints are eased and the industry grows.
When the U.S. finally legalizes weed, Canopy is poised to capitalize. They have a large cash pile, support from Constellation Brands - a multi-billion dollar company, and they have an agreement in place with Acreage Holdings to purchase 70% of the company once weed is federally legalized in the U.S. We believe Canopy can be the leader.
Earlier this year, Canadian weed companies Tilray and Aphria merged to form a new company. They wound up keeping the name Tilray. We have been invested in Aphria since 2019, but the merger made complete sense from an investor standpoint. As we mentioned above, Canopy was the leader and was growing rapidly. These two companies separately could not compete with the behemoth, so joining forces was a smart business move. Along with their recreational business in Canada, Tilray had a strong foothold in Europe and Australia, while Aphria brought its strong pharmaceutical distribution business.
The company also has exposure to the U.S. market through CBD products as it owns Manitoba Harvest and SweetWater. Once recreational weed is legalized, we believe having these companies already in operation could allow for a swift transition and give Tilray a huge headstart.
There's plenty of U.S. companies in the cannabis sector as well. Because they are unable to transport weed across state lines and banking laws currently restrict cannabis companies, it is difficult to see who will emerge as the leader. For those reasons, we have stuck with the Canadian companies and are playing a wait and see game. We are playing the U.S. market with a REIT that focuses on marijuana real estate. The company is Innovative Industrial Properties.
The development of a medical use facility can be quite expensive, and with the banking restrictions currently in place it is difficult to obtain loans. This is where Innovate Industrial comes in. The company provides real estate capital by licensing medical marijuana operators under long-term, triple net leases. Essentially, they become a landlord and the operators pay for the upfront costs through financing within the lease. Legalization could provide a head wind, as operators may be able to get loans more easily, or other real estate companies may begin to enter the space. We believe having a head start and being in 18 states already, this company is poised to remain the leader. One last reason we own this company is that REITs are required to distribute at least 90% of income in dividends to its shareholders. The current dividend yield is 2.61% which is a huge added benefit.
There you have it. That's why we are excited about cannabis and the 3 weed stocks we we are investing in. You can find more in depth analysis on our investments in our Newsletters. We put out a new one every month. Sign up here.
Comment below and let us know how you are investing in the cannabis sector.
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Partnerships
These are the companies we have partnered with this year. They make this blog possible so go check them out!
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Disclosures
I am not a licensed financial advisor or financial professional. This is not investing advice. I am simply sharing my research and opinion based on that research. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
This blog contains some affiliate links. If you purchase any service through one of these links, I may earn a small commission at no extra cost to you.