By Anthony Dutton
Special to
Business Edge News Magazine
Like many, you might be wondering if now is a good time to invest in the cannabis industry.
As the CEO of Cannex Capital (CNNX-CSE), I have an inherent bias, but I believe that there are many compelling factors that make this an ideal time to invest in the industry.
First, there is a massive multi-billion dollar market that already exists, and the transition of cannabis to a legal, regulated industry presents well-positioned companies and their investors with an opportunity to reap huge rewards.
Comparing the opportunity here to a tech company that I took through the start-up and development phases helps paint the picture.
With IBC Advanced Alloys, we introduced a range of remarkable, proprietary rare-metals-based alloys that are still being used in various industries including precision manufacturing and military aerospace. The problem was, it took many years to develop and prove that the product actually did what we said it would do. In spite of the alloy finally being a significant and important technical achievement and commercial success, the story lost its lustre over time and did not produce big wins for investors.
Cannabis is a completely different story. A huge market exists, and research and common sense indicate that the industry will grow sharply in the coming years as countries liberalize legislation pertaining to medical and recreational marijuana use. The global cannabis market currently sits at about $8 billion, and a 2017 report from the Brightfield Group predicts that the international cannabis market will hit $34.1 billion by 2021. The upside for well-positioned, well-run companies is tremendous.
Once you have decided to invest in cannabis, it is important to understand some industry dynamics.
The industry structure is similar to the oil patch, in which you have upstream (producers), midstream (transporters) and downstream (refiners and marketers).
With cannabis, the upstream represents the growers, midstream is the extractors/processors/manufacturers, and downstream the retailers.
Most of the cannabis-related investment to date has been directed to the growers such as Canadian giants Canopy, Aurora, and MedReLeaf. These companies have performed very well for investors and boast billion-dollar-plus market caps.
We believe that the best opportunity for growth and profitability is where Cannex Capital is positioning itself – as a provider of the highest quality cannabis and derivative products such as branded oils, concentrates and edibles. This is where companies can create strong brands with excellent margins. We will be operating primarily in the midstream/extraction/processing and downstream/retailer spaces, and our success will be complementary to that of the large commodity growers.
We have a leg up on much of the competition as we possess great assets that are already up and running. Cannex acquired BrightLeaf Development LLC, which, through subsidiaries, holds real estate assets, property leases, brands and intellectual property, and material supply agreements with Northwest Cannabis Solutions (NWCS). NWCS is the Pacific Northwest’s largest full-line cannabis producer/processor.
Meanwhile, Cannex has $48 million in cash to help acquire other high-calibre assets. For now, we are focused on purchasing assets and establishing partnerships in the U.S. as well as Canada. The U.S. is a very lucrative market with eight states already having legalized recreational marijuana use, and 29 having legalized possession and consumption to some degree. California alone, according to ArcView, is projected to be the largest cannabis economy in the world with projected annual revenues of US$6 billion by 2020.
(Anthony Dutton is Director and CEO of Cannex Capital. He has a lengthy track record of success in the start-up space and decades of experience in corporate finance and business development. He can be reached at adutton@cannexcapital.com)