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This Blue-Chip Firm Is Showing Us the “Fast Lane” to Cannabis Billions

The cannabis market is starting to soar.

The United States is a huge market opportunity, with market projections growing from an estimated $8.5 billion last year to $23.4 billion in 2022, if only a few additional states legalize recreational use. And we’re talking about as much as $50 billion if most states follow the trend.

But the biggest opportunity of all could come in a form people hadn’t been talking about as much…

It’s an opportunity that runs counter to the recreational market trend and the obsession with the cannabinoid THC – the one that causes users to get “high.”

I’m talking about some of the other highly prized cannabinoids present in marijuana – one in particular that one of the world’s biggest, most well-known companies has taken a sudden interest in…

There’s Much More Than THC at Work in Marijuana

My colleagues, friends, and readers have all heard me talk (or seen me write) about cannabidiol (CBD) in terms of its health impact.

It’s just one of the non-psychoactive cannabinoids in cannabis.

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CBD helps relax people, reduces inflammation, eases pain, and can potentially treat many diseases, including chronic traumatic encephalopathy (CTE), as we discussed earlier this month.

With all those effects, it’s no wonder that it’s also being explored as a potential general health ingredient.

If the health effects of CBD and other cannabinoids prove out, the regulated pharmaceutical market will be unimaginably large – $50 billion, $100 billion, or more.

This past week, an explosive new projection and the rumored participation of a very surprising company both advanced the idea that CBD will be even bigger than THC – even if you don’t count the pharmaceutical market.

The company we’re talking about is one of the largest brands in the world.

It makes perfect sense for this company to be looking at CBD as a health ingredient, since it’s been diversifying away from the product that made it famous for years.

This company owns coffee drinks.

This company owns bottled water brands.

This company owns fruit juice.

This company owns vitamin-infused water.

And in what could play out as a blockbuster, it looks for all the world like it wants to own a cannabis-infused beverage…

Look Who’s “Kicking the Tires” with the Cannabis Industry

Coca Cola Co. (NYSE: KO) is rumored to be seeking a joint venture or other arrangement to make CBD-only beverage products. BNN Bloomberg had the scoop, saying that Coke is looking to make CBD-infused health or “recovery” drinks, which would be positioned similarly to energy drinks or Gatorade.

The shock is how early and quickly Coca-Cola is ready to get into the CBD beverage business.

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Most market observers believe that the association of CBD with cannabis would have kept companies out of that market until consumer understanding of the difference between CBD and THC increased over time.

For Coke to have its wholesome image associated with cannabis products is a critical endorsement of the changing consumer perception of cannabis and of the potential opportunity a plunge into the CBD business presents.

But the best way to make money on this monumental rise in the CBD market that’s coming isn’t buying Coke’s stock. It’s not even necessarily in grabbing shares of cannabis giant with which Coke is negotiating, either.

The smartest, most lucrative plays are still off the mainstream radar… for now.

Here’s what I mean…

CBD Is a $22 Billion Sub-Industry in the Waiting

The current rumor is that Coca-Cola is talking to Aurora Cannabis Inc. (OTC: ACBFF), one of the four biggest cannabis companies in the world. And because CBD is legal across the United States, there’s no reason it could not also seek a separate domestic deal.

For its part, Aurora – which itself has been involved in a binge of cannabis-related takeovers in the last year – emphasized Tuesday in a carefully worded statement that it has no deal with any beverage company… yet.

First, that can change tomorrow. That’s often how it goes.

Second, it doesn’t matter whether Coke strikes a deal with Aurora or some other cannabis company.

This is a flag in the ground about how serious, how potentially lucrative the legal cannabis market will grow to be.

So, how large is the CBD industry that it’s pushed the largest soft drink company in the world to act?

Brightview, a respected cannabis industry analysis firm, now believes that the CBD-only market worldwide will grow to $22 billion by 2022. That’s in the United States alone. From under $600 million this year, that represents a growth of 132% per year for four years.

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Brightview thinks of CBD as the future vanguard of an “anti-pharma” health movement, with people taking daily supplements of CBD, using it to substitute for pharmacological disease treatments, adding it to their food, and as Coca-Cola probably foresees, taking it in their beverages.

In this landscape, CBD supplements would become much more widely available. Consumers will be buying them at big-box discounters like Costco, grocery stores, health food stores, drug stores, and more.

If Brightview’s projection is even partially right, the cannabis companies that can execute on sharp, CBD-focused business plans will make vast fortunes for their investors.

And that’s why we’re here, continuing this conversation about cannabis investing… and why I’m so excited about CBD.

But as I said, the owners of Coca-Cola stock – or even Aurora, for that matter – aren’t going to be the beneficiaries of this market sea change when we look back a few years from now.

It’s going to be in the smaller companies that are just finding market penetration because of constantly improving consumer sentiment and education.

It’s going to be the companies that aren’t yet on the radars of big beverage, big pharma, or big alcohol yet… some of which not even publicly traded.

It’s going to be the companies that resemble penny stocks in price… but not in know-how, experience, and leadership in an industry space that outsiders like Coca-Cola still know far less about.

These winners aren’t easy to find without rolling up one’s sleeves and doing hours and hours of the right kind of research. And not all CBD companies are created even close to equal.

And that’s why we’re going to keep this conversation about cannabis – and specifically, the CBD market – going here in the coming days and weeks. I can’t wait to share more of my research and predictions on this with you.

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Cash Runs to Quality in This Growing $1.5 Billion Cannabis Niche

Every investor should understand how the market for cannabis is developing – now and over the coming weeks, months, and years.

Choosing the companies best positioned to profit in the emerging market helps you gain an edge over those who simply “throw darts at a list of stocks” and pick cannabis companies without regard to industry realities.

But as legalization becomes more widespread throughout the United States and across the whole of Canada investors still face questions about what the realities of a mature cannabis market might be.

For some answers, we can look at Colorado – the first U.S. state to make recreational cannabis easily available.

That made some realities evident.

We know, for example, that in places where vaporizing (aka “vaping”) cannabis concentrate is legal, that form quickly takes over a significant part of the market.

Vaporizable concentrates are a value-added product, but they’re also fairly commoditized, meaning customers shop by product attributes, such as how rigorously it’s been tested, say, or the ratio of tetrahydrocannabinol (THC) to cannabidiol (CBD), as opposed to shopping by brand.

The traditional marijuana bud, or “flower,” market, which in Canada is worth about $1.5 billion today, is still fragmented. Customers there are still experimenting with different strains, different growers and brands, and different cannabinoids and THC to CBD ratios. In other words, there are a lot of questions.

One big question facing the market – both in Colorado and worldwide – is whether consumers are willing to pay up for “super-premium” cannabis. That is, cannabis that is more expensive to produce… but that produces a better smoking experience.

There are many producers claiming to make such cannabis – that’s why it’s such a big question. After all, no one is going to advertise that they make the lowest-end cannabis on the market any more than Busch admits that its beer is lower-end than a craft brewer’s.

So how can an investor tell when a company is really producing super-premium cannabis… or merely claiming to grow it?

That’s a very important question because, naturally, the investment case for the genuine super-premium product tends to be much stronger than it might be for the pretenders.

One company last week gave us the answer loud and clear…

So Good, Even Competitors Are Racing to This Company’s Product

Last week, Supreme Cannabis Co. Inc. (OTC: SPRWF) signed a deal that serves as an important indicator of the direction of the market for cannabis “flower” – cannabis meant for smoking.

Supreme is a Canadian grower that started when a father began growing cannabis to treat his daughter’s chronic pain. All along, the company has claimed that its brand, 7ACRES, is superior to other cannabis.

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And lately it’s been proving it.

As Canada moves toward recreational use on Oct. 17, we’ve seen a variety of go-to-market strategies, but none quite like that of Supreme and its 7ACRES brand.

In addition to selling to retailers in Canada’s provinces, Supreme is selling its product to other producers. The idea is that these companies, primarily producers of commodity-grade cannabis, want a super-premium product to round out their product lines. Until recently, 7ACRES struck up these partnerships primarily with other smaller growers.

The company looks to be scaling up in the partnership department, though. Supreme recently signed a deal with one of Canada’s largest producers, Tilray Inc. (NASDAQ: TLRY). That puts Supreme in partnership with two of Canada’s giant producers; it previously signed a deal with Aurora Cannabis Inc. (OTC: ACBFF).

That these giants felt they needed 7ACRES product to supplement their own massive capacity is as clear an indicator as can be imagined that super-premium cannabis will be part of the sales mix in Canada – and that 7ACRES is producing real super-premium product.

The deals tell us investors two things:

  • There will be significant market segmentation in the cannabis market as it matures. Even as branding increases, there will be price-differentiated products targeted to different markets. This makes sense – the alcohol markets work the same way. In fact, the big beer producers have been acquiring craft brewers to gain access to all price and quality points in their markets. Similarly, a company like Diagio Plc. (NYSE: DEO), itself heavily rumored to be considering the purchase of a Canadian cannabis asset, sells whiskeys at price points from $15 all the way up to $500.
  • And there will be room for specialty growers in the long run. Right now, just about all cannabis producers are also growers. That’s actually an unusual industry model. High-end wine growers grow their own grapes, but lower-end producers purchase their grapes from independent farmers. Similarly, the beer and liquor companies don’t generally grow their own barley, corn, wheat, and rye.

In the long run, it’s clear that the cannabis industry will work like the wine industry. Most of the huge producers will sell off their greenhouses to commodity farmers if they can. Over time and with regulatory change, cannabis production will move outdoors and to low-cost areas in South America and Africa. However, there will still be room for specialty growers, whether indoors or outdoors.

As an investor, these facts will not be important – or baked into share prices – for a few years yet… which makes right now a smart time to move and make the most of our early advantage.

The bottom line right now: When a company claims to be producing a premium product, the best indicator of whether it’s telling the truth is if its competitors endorse that claim… with their wallets.

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Source: Money Morning