Todd Harrison of CB1 Capital expects that before long every registered investment advisor is going to need to invest 3-5% of their book in cannabis as a growth area.
During a session at the Investments & Wealth Institute’s Investment Advisor Forum in Midtown Manhattan, Harrison framed the opportunities in cannabis as an investment class and shared insights on what he sees as an emerging force in health care.
“This is not about getting high, this is about wellness disruption,” he told the overcrowded room.
Harrison is the founding partner and chief investment officer of CB1 Capital, which is an investment manager that, according to its website, “specializes in the supply chain of cannabinoid-based wellness solutions, products and therapies that address a wide range of unmet medical conditions, or have commercial use cases.”
According to Harrison, most analysts on the street still view cannabis as a social lubricant versus an entirely new drug delivery platform.
“When people figure out this is disruptive health care, that this is wellness, that this is something that’s good for you, we think that all of the above — banks, insurance companies, pension funds, investment advisors — are going to bum-rush this space.”
Looking at the opportunities in cannabis, Harrison said that right now cannabis is a $300 billion market as a cash crop.
However, this market consists primarily of dry flower and doesn’t account for the oncoming market of diverse consumer packaged goods. As more regulated markets open up, consumption rates should significantly grow as new consumers are exposed to cannabinoids across new distribution networks, according to Harrison.
“A lot of people out there are looking at that $300 billion and saying that’s the addressable market,” Harrison explained. “We look at cannabis and we say these are ingredients.”
In addition to the cash crop, Harrison believes that introducing cannabis as an ingredient into other products will lead to a $2 trillion global market cap in about a decade.
“We’re talking about a global market cap that went from $300 billion to $2-3 trillion over the next decade; I don’t know [a sector] that has that type of growth potential out there,” he said.
Harrison then identified 10 companies and positions that CB1 Capital finds attractive when looking at cannabis as an investment class. These are all positions of CB1 Capital, which include Canadian licensed providers, U.S. multi-state operators, Australian providers and biotech companies.
Village Farms International Inc. (VFF): Village Farms is a Canadian cannabis licensed producer with a market cap of $317 million. Currently one of North America’s largest growers of greenhouse produce, the company announced plans this summer to convert a portion of Canadian greenhouse facilities to cannabis production.
CannTrust Holdings Inc. (TRST): CannTrust, which has a market cap of $1.27 billion, is another Canadian licensed producer. According to Harrison, it is a proven low-cost producer at scale and is undervalued relative to recreational revenues.
OrganiGram Holdings Inc. (OGI): OrganiGram, which is one of three certified organic licensed providers in Canada, has a market cap of $905 million. Harrison finds it attractive because it has higher potential margins due to premium flower, high industry yields and better utility rates.
iAnthus Captial Holdings Inc. (ITHUF): iAnthus is a multi-state cannabis operator in the U.S. with a market cap of $415 million. Harrison likes iAnthus because it has multiple dispensary openings in Staten Island, Miami and Las Vegas, strong 2019 footprint being built in key states like Massachusetts, New York, New Jersey and Florida.
Acreage Holdings (ACRG.U): Acreage, which is another U.S. multi-state cannabis operator, is licensed in 19 states and has development in the major 2019 U.S. markets. According to Harrison, Acreage has a large scale M&A expected in 2019 for top multi-state operators. Acreage has a market cap of $2.4 billion.
Cresco Labs Inc. (CL): Another multi-state cannabis operator in the U.S., Cresco Labs is licensed in nine states and has a particular presence in Illinois. It’s also developed into several major 2019 markets, Nevada, Illinois, Ohio and Massachusetts.
Elixinol Global Limited (EXL): Elixinol is an Australian manufacturer and producer of CBD hemp oil for use in medical cannabis industries. The company, which has a market cap of $205 million, is one of three major publicly traded CBD goods companies.
GW Pharmaceuticals (GWPH): GW, which is considered a leader in developing cannabinoid-based medicines, has a market cap of $4.7 billion.
Corbus Pharmaceuticals Holding (CRBP): Corbus is a clinical stage drug development company focused on treating inflammatory and fibrotic diseases through the endocannabinoid system pathways. According to Harrison, the company received $25 million in funding from the Cystic Fibrosis Foundation.
KushCo Holdings (KSHB): KushCo provides industry leading compliant packaging and manufacturing based on heavily restrictive state laws. According to Harrison, it’s one of few publicly listed non-operational cannabis companies.
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