There’s no time like the present when it comes to buying Canadian marijuana stocks, says Neal Gilmer, analyst at Clarus Securities Inc. But it won’t be an easy ride for investors.
“We believe that the near term is likely to have material volatility as all of these companies are essentially start-ups in an infant industry,” he said in a note to clients. “However, we believe that longer-term, early investors stand to be well rewarded for taking on the risk.”
More generally, Mr. Gilmer believes the Canadian marijuana market has greater profitability potential than in the U.S. because of Canada’s low-cost “Amazon.com-style” distribution model that allows producers to gain scale at a lower cost.“With a direct-to-patient shipping model, producers in Canada can capture what would be considered to be both wholesale and retail margins without incurring the costs for real estate for a retail storefront,” he said.
The analyst believes the industry will have constrained supply until 2016, so those that can capture the market in the next 12 to 24 months will have an advantage.
“After 2016, the ability to capture patients will become a major business issue and those with a strong go-to-market strategy will be best positioned,” he said. “It will also be important in the near term to establish brand quality, awareness and recognition so that a producer is equipped to capture market share.”