Recent M&A action indicates that billions of dollars could now be set to change hands in this fast consolidating sector
- Prime targets will be ones such as a quiet company that’s already tripled its market cap, seen its revenues jump 7X year on year and its gross profits soar 465% higher.1
- Continued rapid expansion has revenues forecast to rocket nearly 4X to at least $28 million.
- Now it’s raking in cash, and that means one thing… the potential for a bidding war between suitors.
Hungry cannabis investors have turned 180 degrees and are now pouring back into select cannabis stocks.
They’re not alone. Because recent mergers indicate that the sector’s big players have a growing appetite to acquire smaller, undervalued companies.
Trulieve Cannabis just snapped up Harvest Health and Recreation (CSE:HARV, OTC:HRVSF) for $2.1 billion.
That’s a lot of money to spend on a company whose stock was as low as 88 cents in June 2020.
Moreover, the $2.1 billion implied Harvest’s shares were worth $4.79… a 34% premium from the day before the deal was inked.
All in all, it came to a 444% gain for investors who jumped during last June’s lull.
Quantum1 is a subsidiary of Quizam Media, which has partnered with Microsoft and Oracle to become one of Canada’s top corporate training centers.2
But, Quantum1 is also a money maker with six dispensaries in Vancouver that are experiencing huge spikes in sales.
That action led Quantum1’s revenues to jump 672% and gross profit to soar 463% compared to 2019’s Q3.
Now, it looks as if Quantum1 Cannabis is poised for a yet another huge runup in growth. It’s one that could generate sensational long-term stock profits.
That’s because, nationwide, Canada’s adult-use cannabis sales more than doubled last year to US$2.1 billion… a 120% jump over 2019’s sales
And now, analysts at the Brightfield Group forecast adult-use sales to grow another 60%.
That means Quantum1 Cannabis, with its many dispensaries, could have an enviable advantage over its peers.
Experience Could Be The Critical Determining Factor
All that potential is why M&A action is so active, with big fish gobbling up the smaller ones that cut into their action.
In April, Canopy Growth said it plans to acquire Supreme Cannabis (CSE:FIRE, OTC:SPRWF).
News of the nearly half a billion dollar deal sent Supremes’ shares flying to 33 cents… a 138% gain year to date.
The merger allows the company to grab a significant toehold in British Columbia.
That was a small deal compared to the mega merger between Tilray Inc. (NASDAQ:TLRY) and Aphria Inc. It created a monster with an $8.2 billion market cap.
Because, its deep experience in the market is a prime example of the rigorous standards investors should hold young cannabis companies to.
In other words, the legal recreational and medical cannabis industries have exceedingly high barriers of entry.
And, as it once was with Quantum1 Cannabis, a strong predictor of success is the ease and speed that new-to-cannabis-industry companies clear the many legal, regulatory, financial, and community barriers that will be placed in front of them.
Because, it’s one thing to tout a cannabis business… it’s another thing to be approved to operate a cannabis business.
Or, as it is with Quantum1 Cannabis, to have scaled the regulatory mountain and now be on pace for what could be $28 million in sales in its second year.
This entire intro is new. Replace everything up to sentence: In other words, the legal recreational and medical cannabis industries have exceedingly high barriers of entry.
Smart Cannabis Companies Like Quantum1 Are On A Prolonged Winning Streak
Take a common starting date, Dec. 16, 2018, to make things fair, and just look at how legal cannabis companies have fared the last few years:
Trulieve Cannabis (TRUL.CN)… up 537%.3
Cresco Labs (CL.CN)… up 145%.4
Curaleaf Holdings (CURA.CN)… up 243%.5
Aphria Inc. (APHA.TO)… up 236%.6
This happened all while investors were told to avoid cannabis stocks.
And thanks to Chuck Schumer, there will be no avoiding them now
Welcome To Investing’s New Wild West
Here’s why a legal marijuana frenzy is set to sweep across the United States…
Let’s not forget that barely eight years ago no state other than California, which legalized medicinal marijuana in 1996, tolerated any form of the drug – recreational or medical.
Then, at a historically breakneck pace, as nationwide movements go, voters said ”yes” on 28 separate ballot measures that legalized cannabis.
Of them, 18 legalized medical marijuana, and 10 measures legalized adult recreational use.
The rapid trend picked up more speed last November when voters delivered a unanimous mandate for recreational marijuana use in Arizona, Montana, New Jersey, and South Dakota.
They also approved its use for medicinal purposes in Mississippi and South Dakota.
The Birth Of A Cannabis Mega Market
The New Jersey vote was key. The action was widely expected to carry a bigger weight … because, as predicted, it forced New York State’s hand.
New York’s Governor Andrew Cuomo signed legal recreational cannabis into law on March 31.
Now the clock is ticking on Pennsylvania, which already has medical marijuana, but may need to legalize recreational pot in order to keep those tax dollars at home and away from neighboring states.
So, you could assume that it’ll be “when” not “if” in Pennsylvania.
That would create a tri-state market with a combined GDP of about $3.2 trillion, eclipsing California and creating the world’s biggest legal cannabis market.8
It also would make the NY-NJ-PA the world’s fifth largest economy.
The Scope Of This Opportunity Is Heart-Pounding
The U.S. recreational and medical marijuana markets are on a trajectory to reach up to $45.9 billion in annual sales by 2025, or as much as twice the level of sales projected for this year.
U.S. adult-use and medical cannabis sales in 2021 are expected to reach $22 billion-$26.4 billion.
If these projections materialize, the value of marijuana sales will grow to two times that of firearms and ammunition, and three times that of McDonald’s sales revenue in the U.S (2018 data).8
But, all in all, 2020 and 2021 will likely go down as legal cannabis’ most important years.
“Many marijuana businesses were declared essential during the pandemic, and more states legalized cannabis markets. 2021 will see more states join in, and their programs are getting started faster than we’ve previously seen,” said Marijuana Business Factbook Editor Jenel Stelton-Holtmeier.
“There is no doubt that marijuana is big business,” added Chris Walsh, CEO of MJBizDaily. “There is clear momentum for exponential growth, with New York and other states with dense populations starting legal sales.”
The ninth edition of Marijuana Business’ Factbook included these key findings:
- 100% of investors expect the industry to do better in 2021 than in 2020.
- The cannabis industry will offer more than 400,000 full-time jobs in 2021.
- An adult-use market in New York, the country’s financial hub, is expected to reach annual sales of $2.5 billion by year five.
But That’s Just Skimming This Mega Opportunity’s Surface
It takes a deep dive into the mechanics of the industry to understand what’s really fueling investor interest in Quantum1.
You see, Quantum1 Cannabis is on the retail side of the industry, currently operating six dispensaries in Western Canada.
From both the legal and financial aspects, operating dispensaries have had to pass stringent qualifications to even be considered for a license.
All of which Quantum1 achieved with flying colors, not just one time, but on six separate occasions.
It’s the reason the current environment favors established businesses that have already jumped through regulatory and financial hoops. And it’s the key to companies like Quantum1 quickly gaining the upper edge as the opportunity to expand arises.
It Takes Deep Pockets To Play At This High Level
Cannabis is and always will be a cash business.
Once you start reading about the prohibitive costs of opening even a single dispensary, it makes a lot of sense why there are so many cannabis farmers in comparison.
You’ll also get a feeling for Quantum1 Cannabis’ tremendous success at opening six dispensaries in British Colombia. A monumental feat when you consider that Trulieve Cannabis (OTC:TCNNF), has but one dispensary in California (mind you, California is currently the world’s largest legal cannabis market).
Application fees alone cost $252,000 with no promise of approval.
Then cannabis companies have to pay $9,000 in federal fees and $33,000 in local application fees per dispensary.11
Frankly, when you understand the business, those fees are a drop in the bucket.
Because, according to COVA, which makes software for cannabis dispensaries, that’s when the costs really start to add up.
- There’s an average $100,000 in annual rent for each dispensary.
- Plus $50,000 for interior renovations – much of it to meet federal regulations.
- It costs an average of $50,000 to install high-tech security and surveillance systems.
- Another $25,000 for the type of business equipment that can track sales and inventory in a way that regulators approve.
- Then there’s $250,000 for staffing.
- Finally, a dispensary will need about $150,000 in startup costs to buy its initial supply of cannabis.
As COVA noted, “When applying for your license and permits, you have to prove that you have enough capital to remain a viable company in the industry.
“Some states don’t require that you have any assets at all, but others like Pennsylvania stipulate that you have $2,000,000 in assets with at least $500,000 of it in liquid cash.”
And then everyone on the team has to pass a background check.
And as for Quantum1’s prospects in the U.S. – because of its solid Canadian foundation, its prospects could be bright… especially considering that as a proven operator it has growing revenues and positive gross profits.
While it could be on pace to generate as much as $30 million in revenue next year in Canada… it could see even greater success in the U.S. once nationwide legalization occurs.
Remember Quantum1 Cannabis is near heroic in its ability to clear the most onerous of regulatory barriers, making that prospect a very real possibility.
Legalized Nationwide Cannabis Could Be A Sustained Mega Trend
Momentum means the legal marijuana mega trend could have massive staying power as U.S. states, hungry for tax revenue, climb aboard.
The people insist.
At least 74% of Americans born after 1981 support legalized cannabis, while 67% of the entire population favors legal weed.[i]
Nearly seven-in-ten Democrats say marijuana use should be legal, as do 75% of independents who lean toward the Democratic Party.
Republicans are divided, with 45% in favor of legalizing recreational cannabis and 51% opposed.
Still, the share of Republicans saying marijuana should be legal has increased from 39% in 2015.
Independents who lean toward the Republican Party are far more likely than Republicans to favor marijuana legalization – 59% vs. 45%, according to the Pew Research Center.[ii]
That means the nationwide prohibition is set to be shattered.
And that is just one of the…
- Jumping Through Hoops — Quantum1 has opened six dispensaries in Western Canada, where the paperwork and regulations are challenging.
- Cash On Hand – When all the fees are added up, it takes anywhere from $500,000 to $1 million to license and open a cannabis dispensary. Quantum1 is used to paying heavy fees.
- Growing Quickly – Quantum1 CEO, Russ Rossi, noted during a recent interview that year-on-year, his company’s Q3 revenue jumped by 591%, then its Q1 revenue grew 672%, both are year on year11
- Let The Craziness Begin – Billions of dollars are likely to change hands as the North American cannabis markets consolidate.
- Banking Bonanza – Legislation in both houses of Congress would finally allow financial institutions and banks to provide their services to cannabis – marijuana and hemp – clients without fear of federal sanctions. This is the final step needed before end the nationwide cannabis prohibition. The legislation enjoys bi-partisan support, and is in “position A” for passing in 2021.
- Secret Sauce – This is wild, the value of marijuana sales is about to grow to two times that of firearms and ammunition, and three times that of McDonald’s sales revenue in the U.S. That’s a mega trend.
- The Safe Play – Anyone who remembers the Wild West that broke out when Canada legalized recreational cannabis can use that as a starting point for what could happen in the U.S. Investors who don’t buy Quantum1 Cannabis should still use it as a measure against the torrent of small cannabis companies that could be about to overrun the U.S. stock markets.
- The Wild Card – There will be tons of new excitement in the U.S. cannabis industry. Cash will flow and mergers and acquisitions could happen at breakneck speed. It would not be too surprising to find a suitor paying $2 to $3 dollars a share for a company that knows the cannabis retail sector’s ropes.
This a rare moment in time for cannabis investors.
A whole new world is set to open up.
Experience will count.
Now would be a good time to line up for what could be mega-trend returns.
That could give you a chance to put yourself among its earliest and biggest winners.
But please, before you do take any action, make sure to show your investment advisor or broker a copy of this story.
When the legal cannabis dam breaks they’ll have to be on their toes because the action will be intense.
But, when you slow down and think about it, chances are you’ll both be in agreement that Quantum1 Cannabis / Quizam (CSE: QQ | OTCQB: QQQFFCSE: QQ | OTCQB: QQQFF) is a high-potential legal cannabis sector play.
“The basic story line prompting an explosion of investment in the industry in 2019 remains intact. The gradual legalization around the world of a plant which humans have been happily consuming for millennia is creating one of the largest industry-growth phenomena in history.” – Tom Adams, managing director and principal analyst at BDS Analytics.
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