The cannabis industry has become one of the sectors that has caught the attention of investors. The marketplace has grown substantially that new players are continually entering into the industry. Cannabis-based businesses spanning across countries such as the U.S., Canada, Colombia, and Argentina have been emerging into the spotlight.
While federal regulatory legislations heavily hinder the market, data shows that the cannabis space is expected to be one of the fastest growing industries. According to data compiled by Grand View Research, the global legal marijuana market is projected to reach USD 146.4 Billion by the end of 2025. Furthermore the research suggests that the market is expected to register a robust CAGR of 34.6% throughout the forecasted period. Primarily, the North American region is expected to dominate the cannabis industry. In particular, the U.S. alone contributed to approximately 90% of the global market share last year, however, cannabis is still federally illegal within the country. Although, the U.S. government has authorized states to act upon cannabis regulations themselves, which has led to 10 states and the District of Columbia to legalize recreational cannabis.
Although cannabis is still considered federally illegal in the U.S., major exchanges like the New York Stock Exchange and Nasdaq have cannabis stocks listed. Only a handful of cannabis-based businesses are listed on those two exchanges. Most companies are listed on exchanges such as the OTC Market, the Canadian Securities Exchange, and the Toronto Stock Exchange. Companies like Cronos Group (NASDAQ: CRON), Canopy Growth Corporation (NYSE: CGC), and Aurora Cannabis (NYSE: ACB) haven risen to become the top cannabis companies and listed on major U.S. exchanges. In 2019 alone, Cronos saw its stock price skyrocket by 110%, while Canopy and Aurora rose by 75% and 48%, respectively.
The attractive growth has interested many investors, but due to regulations, warning statements have been issued in order to protect stockholders. The U.S. Securities and Exchange Commission issued an alert in September 2018 regarding marijuana investments and fraud. The SEC warned investors to pay close attention for fraudsters who may try to manipulate stock prices by spreading misleading or false information, similar to the cryptocurrency mania last year.
Last year, due to lack of regulations over cryptocurrency, certain coins saw their prices rise substantially. In particular, bitcoin’s price soared to USD 19,000 before plunging to currency prices of USD 3,800. Similarly, some cannabis stocks have had the same trend. Tilray saw its share price surge to USD 300 per share before crashing down to current prices of USD 80 per share. The volatile cannabis market has caused concerns for many traders and investors, which raised the issue of how businesses will protect their shareholders.
CLS Holdings USA Inc. (OTCQB: CLSH) (CSE: CLSH), a diversified cannabis company operating in Las Vegas, Nevada and Massachusetts, recently announced it has redeemed all of its convertible debentures issued to YA II PN, Ltd, “Yorkville”. Pursuant to the terms, the investor generally was able to convert any portion of the principal and accrued interest under the debentures into CLS’ common stock at a fixed price of USD 40 cents per share. By redeeming the debentures, CLS has eliminated the potential issuance of approximately 2.5 million shares of CLS stock that would be immediately eligible for resale.
“We have been reviewing a number of options available to us for increasing shareholder value and felt this would be a beneficial transaction by eliminating the potential issuance of a substantial number of shares that could be sold in the market,” said CLS in a press release.
The cannabis industry is appearing to become a credible marketplace as it continues to gain traction. Major investment banks such as Piper Jaffray and RBC Capital Markets have backed the cannabis sector, adding more credibility. The industry has the potential to become the next global disruptive market due to the numerous countries looking to use cannabis for medical applications. However, government agencies are still warning investors to approach the marketplace with caution.