The cannabis industry has a huge event right around the corner – this could be the spark the industry needs to break out of this bear market.
On October 17, the size of the Canadian cannabis market is expected to double. That’s the day cannabis extracts (edibles, beverages, oils) become legal in Canada. Leading market-research firm Deloitte is projecting this will generate an additional $2.7 billion in annual sales, doubling the size of the Canadian cannabis market.
Cannabis edibles are expected to account for $1.6 billion of annual sales.
But, close behind edibles is a relatively new and high-growth cannabis product that investors need to know about.
Deloitte is predicting cannabis beverage sales will clock in around $550 million per year. Here’s a link to the full report.
This projected rapid growth of Canada’s cannabis beverages market mirrors a larger global trend.
According to a recent report from leading cannabis industry research firm Zion Market Research, the global cannabis beverages market was valued at $1.6 billion in 2018. Looking forward, Zion predicts the market will grow to $4.5 billion by 2025, a compound annual growth rate of 16%.
Companies that capture an early lead in the Canadian cannabis beverages market should have an opportunity to extend that early lead into global markets.
2 Companies Set To Dominate Cannabis Beverage Subsector
Right now – I see two companies that are set to dominate Canada’s cannabis beverage industry.
These two companies have a key trait that separates them from the competition – partnerships with multi-billion dollar leaders in the global alcohol market.
These two companies are also:
- Early leaders in the global cannabis market.
- Early leaders in Canada’s cannabis market.
- Shares are on sale trading 50% below the 52-week high.
Canopy Growth Corp (WEED, CGC)
Canopy is the world’s largest cannabis company. There is no company that is better positioned to capitalize on Canada 2.0 than Canopy.
Canopy accepted a $4 billion investment from Constellation Brands (NYSE: STZ) in August of 2018. Canopy has been using that big cash investment to ramp its production capacities.
Today, Canopy estimates its production facility has the ability to produce 15 million soft gels, 850,00 edibles, and bottle five million beverages every month. There is no other Canadian cannabis company with this kind of production abilities and that should be a big advantage for Canopy.
I expect Canopy to develop an early lead in cannabis beverages in Canada. From there, I believe Canopy to go global with its cannabis beverages with the help of Constellation. Constellation provides the perfect platform and experience, operating in more than 100 countries with a well oiled global distribution network.
While Canopy is in position to capitalize on Canada 2.0 and the global beverages market, shares have been struggling. Canopy is down more than 50% from the 52-week high.
Looking forward, I expect Canada 2.0 to give Canopy support on the chart and help shares stabilize and recover.
Hexo Corp (HEXO, HYYWF)
Hexo is another early leader in Canada’s cannabis market with a market value of $1 billion.
Like Canopy, Hexo is uniquely positioned to capitalize on Canada 2.0 cannabis beverage market.
Back in August of 2018, Hexo partnered with Molson Coors (TAP), one of the largest alcohol companies in the world. Through the partnership, they have formed a new company called Truss that specializes in making cannabis beverages.
According to a recent report from Bloomberg, Truss is ready to sell multiple cannabis beverages on the first day the market opens on December 16.
Hexo is predicting cannabis beverages will account for 20% to 30% of annual cannabis sales.
While Hexo is getting ready to cash in on Canada 2.0, its share price has also struggled just like Canopy. Hexo is down 60% from the 52-week high. Looking forward Canada 2.0 could be just the thing to help shares stabilize and rebound.
The Big Picture
Canada 2.0 is a big event for the Canadian cannabis industry. Cannabis beverages should be an exciting new product category with high-growth potential. Early leaders in Canada’s cannabis beverage market should be able to expand into global markets.
Canopy and Hexo are in position to cash in. The two companies have a big advantage over their peers with partnerships with two of the largest alcohol companies in the world. Canada 2.0 could be just the thing to help these two stocks rebound from the recent bear market.
Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED).
About the Author
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.