Mary Jane’s New Look
Hunter S. Thompson, infamous “gonzo journalist” who influenced countless writers (among them yours truly), once said:
“I have always loved marijuana. It has been a source of joy and comfort to me for many years. And I still think of it as a basic staple of life, along with beer and ice and grapefruits. And millions of Americans agree with me.”
Marijuana is indeed becoming a basic staple of life. Yes, the marijuana industry remains a fast-growth opportunity and it still has many legal hurdles to conquer, but it’s also showing signs of maturity as a global retail business.
Two signs that Mary Jane is coming into her own are 1) greater corporate consolidation and 2) the widespread emergence of ancillary industries that provide generic services. Below, I examine increased merger and acquisition (M&A) activity among marijuana companies. I also focus on the meteoric rise of marijuana packaging companies.
Let’s first address consolidation. Cannabis industry M&A activity has surged in 2021, as large, cash-rich marijuana companies that are Wall Street “story stocks” scoop up smaller, more obscure, bargain-priced players to achieve bigger customer bases, new technologies and products, wider distribution networks, and greater economies of scale. The majority of these cannabis deals have been all-stock transactions.
In tandem with the acceleration of deal-making, marijuana equities have been climbing. Over the past 12 months, the gain of the marijuana industry benchmark exchange-traded fund Amplify Seymour Cannabis ETF (CNBS) has outpaced the gain of the S&P 500 index, 67.7% versus 30.1% respectively (as of market close October 4). Marijuana stocks have set the table for continued gains in Q4 and into 2022.
Keep it classy…
One area that’s experiencing considerable consolidation, and which gets scant attention from the financial media, is marijuana packaging.
According to Zion Research Group, the global cannabis packaging market is projected to reach USD 25 billion in annual revenue by 2025, up from $12 billion in 2021 (see chart).
Packaging entails custom labeling, child resistant glass and plastic jars, vape cartridges, tincture bottles, and concentrate jars. Fueling market growth is the rising need for specialty packaging such as airtight containers, to keep marijuana fresh and uncontaminated. Light and oxygen can degrade marijuana and its active ingredients.
It’s also a matter of perception. To break through any lingering political stigma against marijuana products, the classier the packaging, the better. It helps if marijuana packages resemble those for well-accepted products you can find on any retail shelf. Buzz words on labels such as “organic” and “all-natural” enhance consumer appeal.
Firms are sprouting up to meet highly specific government regulations regarding marijuana packaging and labeling. If you’re a grower, dispensary, or other marijuana-related business, you can’t do without the products and services of cannabis packaging providers.
“Pick-and-shovel” plays such as packaging companies are especially enticing as investment plays on the marijuana boom. These companies aren’t necessarily about growing marijuana or creating drug treatments from the plant. Marijuana investing can be volatile, but you can obtain greater safety and profits by focusing on the ancillary firms that provide infrastructure services for expanding pot companies.
Pick-and-shovel plays can be reliable money-makers because they provide essential value-added services. What’s more, they usually enjoy a diversified roster of clients in several different industries, which buffers them from the inherent riskiness of the marijuana sector.
An up-and-coming ancillary business is marijuana real estate, as canna-preneurs gobble up cheap retail space left vacant by bankrupt “big box” stores.
Real estate development firms specializing in dispensaries, law firms focused on changing marijuana laws, and investment firms seeking to inject capital into land development projects are all thriving.
Pot-related real estate has become a cottage industry, with the major players usually working in concert. The trend is transforming communities by making real estate (especially farmland) more valuable and generating new jobs. In many instances, marijuana real estate activity is reviving formerly moribund communities.
You might be surprised to learn that the establishment of a marijuana dispensary in a community actually increases surrounding home values. According to the real estate research firm Clever, cities that allow retail dispensaries saw home values on average increase $22,888 more than cities where marijuana is illegal (from 2014 to 2019).
Looking to profit from the marijuana boom? After painstaking research, we’ve pinpointed cannabis investments with the greatest profit potential. Click here for details on the best pot stocks.