Cannabis stocks continue to show long-term growth

Plus 3 cannabis IPOs that raised eyebrows

In case you missed it, pot dealers are on the stock market now, and have been for a few years. While many await nation-wide legalization to open the floodgates on Canada’s impending multi-billion dollar recreational-use industry, there already exists a thriving, fully legal medical-use industry publicly traded on the Toronto Stock Exchange (TSX), the TSX Venture Exchange (TSXV), and the Canadian Securities Exchange (CSE). While the selection of cannabis stocks is still relatively small, with less than two dozen Canadian cannabis-specific companies listed, for those who succeed in getting listed, business is good—very good.

Big money is rapidly getting behind the emerging legal cannabis industry in Canada. Most recently, Aurora Cannabis Inc (TSXV:ACB) made headlines with their announcement of completion for raising $75,000,000 in investment capital, the largest private placement offering in Canadian history for cannabis corporations.

Even amidst an industry-wide market dip in reaction to a recent pesticide use scandal, some of the long-term gains approach astronomical, with returns showing in some cases triple to tenfold their investments. It helps that the recent scandal came on the heels of a market surge that stemmed from a December recommendation from the federal legalization task-force, suggesting that cannabis legalization should take a “widespread retail sale” approach.

The success of Canada’s cannabis industry stock market sector should come as no surprise. Year after year, the CCSA’s past-year use charts show that over ten percent of Canadians use cannabis. With a domestic market roughly the size of the entire population of Toronto, it’s easy for investors to see the potential. Taking a closer look at the IPO details of some cannabis companies who have gone public in recent years, it also becomes hard to ignore. Here are some examples of Canadian cannabis company IPOs that raised eyebrows:

Emblem Cannabis Corp (TSXV:EMC)

Emblem is a great first example, as it showed impressive IPO gains both for pre-IPO investors and for day-of investors. The majority of IPOs are most profitable for venturists and early investors who buy private placement stock before a company goes public, with investors who buy during an IPO most often intending to maintain long-term holdings or to perform multiple short-term transactions during the rapid fluctuations of the IPO frenzy. But in the best of circumstances a stock will not only show a high return for its early investors, it will also close at a higher price at the end of its first day, showing immediate growth for early birds and day-of investors as well. Emblem did exactly that.

Prior to its IPO, Emblem’s private placement stock was being bought at fifty cents per share. When the IPO date arrived EMC astonished early investors, opening at $2.99/share. Then it kept raising eyebrows for the rest of the day, closing at $3.26. That’s roughly 10% growth on its first day (not to mention pre-IPO investors having seen a 600% return on their investments).

Emblem’s IPO date was December 12th, 2016. Its initial growth having peaked nicely at +10%, there was a post-IPO dip after the first-day frenzy died down (as is usually the case). But by January 12th, 2017—exactly one month after the IPO—EMC hit its first recovery peak, closing at $4.41 per share. For those who bought during the IPO at three dollars per share, that's a 46.6% profit over 30 days. As an example, $1,000 invested on Dec 12th was worth $1,466 just a month later.

OrganiGram Holdings Inc (TSXV:OGI)

OrganiGram has been in the news a lot recently due to some of their products having been found to contain evidence of the use of banned pesticides. While the resultant dip in share prices has negated the long-term growth it had previously enjoyed, OrganiGram is still a perfect example of strong IPO performance.

Among the earliest of publicly traded legal cannabis producers in Canada, OrganiGram debuted on the stock market in August of 2014. Before its IPO, early investors paid $0.85/share for private placement stock. At the IPO they more than doubled the value of their investments, with OGI opening just above $2/share. Then, just like in Emblem’s more recent example above, day-of investors reaped a healthy 10% gain as the markets closed with OGI valued at $2.38/share.

OrganiGram hasn't shown much in the way of long-term growth. At the time of this writing the trade price of OGI stock is $2.38—exactly the same as its closing price at launch over two and a half years ago, to the cent—and although that reflects a stabilization after the recent dip, its share price has been in decline since having peaked at $3.99 in November of 2016. It does, however, show that even during the Harper administration, legal cannabis was showing IPO returns of over 200% for pre-IPO investors.

Canopy Growth Corp (TSX:WEED)

This is about as close as it gets to blue-chip for cannabis stocks. Currently valued over $10/share, CGC is possibly the biggest success story in the whole of the Canadian legal cannabis industry.

The IPO of Canopy Growth Corp (originally Tweed Inc) was an interesting case. Interest generated by pre-IPO buzz caused the the market price to be inflated to open at $3.50/share at launch in July of 2016, much higher than anticipated by the pre-IPO investors who bought private placement stock at $0.89/share. With over 3.5 million shares of CGC stock changing hands during the IPO, pre-IPO investors saw their holdings more than triple in value that day.

But Canopy Growth Corp's success story goes beyond its IPO. The company has consistently continued to impress investors since then with steady, non-trivial growth. Even with Canadian cannabis stocks across the board having suffered a sizeable dip due to the pesticide-use scandal, CGC has stabilized at roughly $11/share. Even for post-IPO investors that's nearly 250% growth, while pre-IPO investors have seen a 1,135% gain in the value of their investments. In layman's terms, $1,000 invested in CGC before July 26, 2016, would be worth $11,360 today, less than one year later.

All this growth has caught the attention of investors south of the border, where prohibition continues to handicap US industry at the federal level. American investors who are eager to grow the cannabis industry—but trepidatious about committing funds to enterprises that operate in legal limbo—are finding refuge in Canadian markets, where federal law protects ACMPR-compliant producers.

It’s yet unclear what role medical cannabis producers will play in the oncoming landscape of recreational legalization, but historically being first to market has shown to be one of the leading factors in success. Even with the federal task force having implied the inclusion of dispensaries in the legalization discussion, LP stocks across the board enjoyed a rise in share values. With millions of shares being traded every day the opportunity to invest in legal cannabis is already here, in spades.

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  1. Maxcatski Reply

    Returns have not been quite as rosy as this article states. I bought Emblem on December 16 at $3.27 and it is down to $2.24 today. This is a return of -31.5%. That is a loss, even if unrealized. The only positive return I have seen from four stocks so far is Cronos Group (MJN) which is up 45% since November. Cannabis stocks are volatile and returns are NOT guaranteed. All the money anyone has made from legal cannabis so far is from share price gains since profits from revenue don't exist - yet. That makes it kinda hard to asses this market "space" on any normal profit/loss basis. It's a crapshoot so buyer beware!