Canada’s booming cannabis sector has attracted around $700 million in financing over the past six months, as investors await a highly-anticipated legalization bill that experts say can open up a multibillion dollar market.

Canaccord Genuity, an independent investment dealer, has been tracking capital flows into public and private cannabis companies in Canada since 2014. Although interest in marijuana companies has been steadily rising over the last two years, interest surged in the latter half of 2016 and continues strong to this day. Equity financing reached $150 million in the third quarter, followed by an additional $350 million in the December quarter.

Momentum has since accelerated, with an additional $350 million in financing generated through the early part of 2017.[1]

For those keeping track, that’s $700 million in equity financing over the past six months and $850 million since July.

Liberal Government Promises Legalization

Although the world of politics is built on hollow promises, the Liberal government made the clearest declaration of any G7 nation that it will legalize marijuana, and it has followed through with it.

The plan is to announce legislation next month that will legalize recreational marijuana use nationally by Canada Day 2018, reported by CBC News.

For all Canadian, home-growers out there, just keep in mind you’ll only be allowed 4 plants per household.

“We will legalize, regulate, and restrict access to marijuana,” the federal Liberals say on their official website.

Prime Minister Justin Trudeau has attempted to quell rumors that he is any sort of special advocate for marijuana, declaring that legalization isn’t meant to please smokers, but to prevent children from accessing it.[2] The Liberal government’s official platform is that prohibition is ineffective and a drag on the criminal justice system.

Although recreational weed is still illegal at the moment, that hasn’t stopped new storefront dispensaries from selling the product. Cannabis dispensaries and weed lounges are sprouting up all over the country, much to the chagrin of federal lawmakers. You can expect this market to flourish even more, despite it still being illegal.

Analysts say Canada’s recreational cannabis industry is primed to attract new capital given the current political climate and the likely role licensed producers will play in the expanding market. Medical marijuana has been legal in Canada for decades. Producers that serve this market are likely to eye aggressive expansion to address anticipated demand in the recreational segment.

Potential Economic Impact

That demand is expected to be huge, says Deloitte. The firm projects that legalization of recreational cannabis could pump $22.6 billion annually into the economy.[3]

For some perspective, Canada’s economy is about one-tenth the size of the United States’, and its population is smaller than California’s. A $23 billion industry in Canada could translate into $230 billion south of the border assuming similar legal frameworks are in place.

Canadian marijuana stocks have certainly caught the tailwind of the legalization debate, having enjoyed strong gains over the past 12 months. A small handful of companies have emerged as viable investments, although most are concentrated in the medicinal sector.

A Caution on Investing in Canadian Cannabis Companies

Canada’s cannabis sector is all the rage these days, and that’s precisely why investors need to tread carefully. The euphoria surrounding legalization has left out one crucial detail: none of the actual trading that has gone on over the past six months has been based on earnings or revenue. This is especially true for recreational companies that have been waiting on this green light from the feds.

So while legalization is happening, it is still illegal right now. Investors should plan accordingly.

Canadian Cannabis Stocks to Keep an Eye On

Canada’s cannabis sector has a few notable players that are likely to attract the most investor attention as the legalization heats up. Some of Canada’s leading cannabis stocks include Canopy Growth Corp (WEED), Aphria (APH), Cronos Group (MJN), Aurora Cannabis (ACBFF) and Supreme Pharmaceuticals (SL). These licensed growers are expanding their operations and are poised to capitalize. For investors, each of these stocks can be traded Over-The-Counter.

[1] Cannabis.info (March 16, 2017). “Canadian Cannabis Industry Raises $700m in 6 Months.”

[2] Emma Paling (December 4, 2016). “Justin Trudeau Says He Isn’t Legalizing Marijuana To Make Smokers Happy.” The Huffington Post Canada.

[3] Daniel Tencer (October 27, 2016). “Legalized Marijuana In Canada Would Be Worth Up to $22.6B Per Year.” The Huffington Post Canada.

Nate Stavseth

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