Legalization of recreational marijuana in Canada...Three stocks benefiting from the cannabis boom, even though they don't grow cannabis
There is more to the marijuana industry than just the buying and selling of cannabis. As the legalization of recreational marijuana in Canada next summer draws closer, investors have been piling into cannabis-cultivating companies, driving the shares of producers such as Canopy Growth Corp. and Aphria Inc. up more than 100 per cent over the past 12 months.
There is, however, more to the burgeoning industry than simply growing plants.
A Deloitte study on Canada’s coming recreational market predicted that sales could reach as much as $8.7 billion per year, but noted that the money from ancillary activities could boost the economic impact to more than $22.6 billion.
As a result, companies designed to support, service and supplement the sector are also seeing their shares bid up to unprecedented levels.
With that in mind, here are three fast-moving marijuana stocks that don’t necessarily grow marijuana:
Neptune Technologies & Bioressources Inc.
Medical marijuana is already legal in Canada, and Quebec-based Neptune, a manufacturer of nutritional supplements, is jumping into the market.
Neptune said in late November that it was now extending a licensing agreement for the use of its “patented omega-3 fatty acid delivery technology” in connection with products derived from cannabis.
“We will now begin investigating the impact of this innovative technology on the absorption and benefits of cannabis and cannabinoid ingredients,” said Jim Hamilton, chief executive of Neptune, in a release. The company says it has also applied for a licence to produce cannabis oil.
Echelon Wealth Partners said in a note that Neptune “is already exploring creative ways to marry cannabis oil with existing expertise in nutritional supplement co-formulation and distribution.”
“We also see no reason why oil-based cannabinoid formulations sold into nutritional/medical markets cannot grow as rapidly as recreational markets, if not faster,” wrote analyst Douglas Loe.
Shares of Neptune are up more than 65 per cent this year on the TSX, trading at around $2.15 on Friday.
Namaste Technologies Inc.
The company calling itself the “largest online retailer for cannabis delivery systems globally” has been busy recently.
Vancouver-based Namaste recently struck a hardware supply deal with a wholly-owned subsidiary of Alberta’s Aurora Cannabis Inc. that would let Namaste sell home-growing systems alongside its vaporizers.
Namaste also announced at the end of November that it was selling its U.S. assets, citing “political uncertainty surrounding the legalization of cannabis” south of the border, and vowing that it would focus its efforts on legal marijuana markets.
Canaccord Genuity said in a note that the move could position Namaste for a potential TMX listing, as the stock exchange has threatened companies with possible delisting over any pot-related operations in the U.S., where marijuana is still illegal at the federal level. Namaste’s divestment from the U.S. is “also putting itself in the sights” of other Canadian licensed producers, Canaccord noted.
“We believe that vaporized oils and extracts are rapidly becoming a key component of international legalized recreational markets, as vaporizers and vape pens are amongst the fastest-growing segments of the global cannabis industry,” added Canaccord analysts Neil Maruoka and Matt Bottomley.
Shares of Namaste are up nearly 250 per cent this year, trading at 91 cents apiece Friday afternoon.
Radient Technologies Inc.
Edmonton-based Radient uses “microwave assisted processing” to make for the faster extraction of compounds from materials such as cannabis.
Alberta-based Aurora has taken an interest in Radient’s services, announcing last week that it would increase its stake in Radient to 19.18 per cent from 8.8 per cent.
The proceeds raised from Aurora’s investment were to beef up Radient’s operations, “including preparations for the broadening range of extraction-based cannabis products that are expected to be permitted under the new Cannabis Act,” a release said.
“With multiple Aurora facilities coming online and ramping up production in the coming quarters, as well as the anticipated export of cannabis oils and preparations for the legalization of adult consumer use in Canada, Radient’s planned expansion positions both companies exceptionally well to accelerate revenue growth,” added Terry Booth, chief executive of Aurora, in the same release.
Shares of Radient, which trade on the TSX Venture Exchange, are up more than 277 per cent for the year, trading at around $1.81 on Friday afternoon.