5 Legal Cannabis Companies to Watch in 2017
2017 Will be a Good Year for Legal Cannabis Companies
2016 was a great year for the legal cannabis industry.
States that legalized recreational cannabis prior to 2017 saw a huge increase in tax revenues, job creation, and local economic activity. And this has resulted in a sort of “green rush” where we’re now seeing dozens of other states begin the process of legalization in some form.
As with any new and vibrant industry, however, there are some companies that simply stand out among the rest. These are the companies that will not only prove to be huge opportunities for investors, but huge opportunities for those who advocate the legalization of cannabis as a way to instigate positive social change while make a lot of money in the process.
So here are out top 5 legal cannabis companies to watch for 2017.
Bloomberg claims it’ll make up half the legal cannabis business.
I think it’ll be more.
I’m talking about edibles, and there is more and more data suggesting that the demand for edibles could soon outpace demand for flower. This is a very big deal as it indicates a maturation of this consumer segment.
Gone are the days of limited options and low-quality offerings. Today, when you walk into a dispensary you’re greeted by a vast array of flower, edibles, oils, tinctures, concentrates, and whatever else these mad scientists can dream up.
But without a doubt, it’s edibles that are seeing the biggest growth. In fact, the good folks over at New Frontier Analytics, which monitors and manages cannabis data has found that the growth in edibles has actually fueled much of the boom in sales we’ve seen over the past couple of years. Dispensaries love edibles, too, as the price points on edibles tend to be higher, thereby allowing dispensaries to capture higher sales per customer.
Personally, I’m a fan of edibles. Not just as an investor, but as a consumer. I really don’t like smoking, but if I do want to enjoy the herb I can easily do so with an edible. The tough part is finding an edible that doesn’t smell like bongwater and taste like sand.
Annoyance or Opportunity?
I’ve tried a lot of edibles in the legal cannabis marketplace, and one thing many of them have in common is that they’re really just crappy junk food infused with cannabis.
Gummy candies, cookies, popcorn, it’s all pretty much garbage loaded with all kinds of processed sugars and chemicals I can’t pronounce. Certainly I don’t eat that kind of stuff when it’s not infused with cannabis, so why would I eat it when it is?
I suppose that’s a silly question, but it does deserve an honest answer: Because people like me, who don’t like to smoke but still enjoy the occasional experience have few other alternatives. But while some folks look at a situation like this as an annoyance, I see it as an opportunity.
No More “Stoner Food”
For the past couple of years I’ve been hit up by well over a dozen edibles manufacturers seeking early-stage capital. While I do see the huge opportunity in edibles, I’ve always turned them down. That’s not to say they were necessarily bad deals, but when it comes to edibles, I want to see more than just spreadsheets and sales projections. That stuff is important, but when it comes to edibles, I’m not interested in investing unless management is serious about quality, not just quantity.
Anybody can pump out cannabis-infused food, but it takes real skill and passion to create something that really elevates the edibles market. And quite frankly, that’s where I see the real long term opportunity.
As more and more states legalize, consumers are going to demand more than just “stoner food.” Baby boomers, stay-at-home moms, professionals – most of these folks aren’t interested in sugar-crusted jelly rings and space brownies. That stuff was fine when they were younger, with less disposable income. But today, these people are looking for more.
Défoncé Chocolatier is a maker of high-end, artisanal chocolates infused with cannabis. I was actually introduced to Défoncé by one of my contacts in Los Angeles who’s personally working with this outfit.
Now before I go any further, there’s something you have to understand about Défoncé. This is not a company making commodity chocolates for the masses. This is quality cannabis-infused chocolate that was created by a team of veteran artisans that use single-origin cannabis and gourmet chocolate.
Défoncé actually sources its chocolate from TCHO Chocolate. If you’re unfamiliar, TCHO is a high-end chocolatier in San Francisco. It sources its own cacao beans directly from farmers and controls every step of the process from fermentation and roasting through molding and packaging. And this isn’t some little mom and pop shop, either.
TCHO does more than $6 million a year in revenues and its considered one of the most successful high-end chocolatiers in the world. This is not only where Défoncé sources its chocolate, but it’s also where Défoncé found some of its earliest partners.
That’s right, TCHO isn’t just a supplier, it’s a partner. And definitely worth mentioning is that TCHO CEO Louis Rossetto and President Jane Metcalfe are co-founders of Wired magazine. They know how to run a company, and these folks thought it would be a good idea to partner up with Défoncé.
In terms of where Défoncé gets its cannabis, the company sources it from Hummingbird Medicinals, which grows and raises its cannabis in the Sierra Nevada foothills, which just so happens to be the best micro-climate on Earth for sun-grown organic cannabis.
Hummingbird Medicinals uses biodynamic farming techniques that utilize complex composting methods to build soil so microbially abundant that fertilizer is not required to grow cannabis. This is almost unheard of in cannabis farming. This particular method also leaves the smallest footprint possible for a farm. In fact, it actually improves overall soil health. Also worth noting is that this method is effective at growing strong, vibrant plants, some of which measure up to 16 feet tall and 30 feet wide.
All quality food products begin with quality ingredients, and this is what sets Défoncé apart from every other edibles maker I’ve come in contact with. Let me explain ...
First, let’s start with taste.
Défoncé’s chocolatiers are not rookies. Their careers were spent at high-end chocolate manufacturers before joining the team. As a result, they understand how to create chocolate that pairs extremely well with cannabis.
The company’s cannabis oil is actually treated with such care that it only exhibits small traces (and pleasant ones at that), of cannabis. You can actually pick up hints of rosemary and sage. That’s the cannabis, which happens to clock in at more than 85 percent cannabinoids – an exceptionally pure cannabis concentrate.
Consistency is also a very important differentiator here.
It’s nearly impossible to find dosing consistencies in edibles. In fact, Défoncé has made the only edibles product I’ve ever had the delivers stable consistency.
You see, each bar contains exactly 180 milligrams of THC. Each section of the bar contains exactly 10 milligrams. The molds have actually been custom-made to capture the chocolate in quantities and shapes that guarantee dosing for overall bars and individual sections. And just to ensure this consistency is never lost, each batch of chocolate is tested three times by CW Analytics labs in California.
Design has also helped put Défoncé in a different class of edibles. While some may not put much thought into it, Défoncé has designed its packaging in a way that it communicates a higher caliber of edible. In fact, Mic.com, a media company that targets millennials (and enjoys a $100 million valuation), said “If Apple designed pot chocolate bars, this is what they’d look (and taste) like.”
There are a lot of edibles brands out there desperate to find a solution to the taste problem associated with edibles. Défoncé’s manufacturing secrets are protected, and management is in an excellent position to exploit that. The company just opened up a new manufacturing facility to cater to what could soon be a very significant demand.
It's not so hard to find these days.
From Whole Foods to Wal-Mart, it's actually quite abundant.
Of course, most of my food comes from local organic farmers that I've known for years, and of course, trust.
I can also somewhat rely on USDA organic certification. While there are still some questionable mechanisms used by the USDA to test and enforce this certification, the existence of this program certainly helps me lessen my chances of scarfing down toxic cocktails of neonicotinoids and glyphosate.
So yes, finding organic food is not difficult. Finding organic cannabis, however, is.
Pot, Pesticides, and Profit
I have to admit, I always find it a bit disturbing when I see so many folks singing the praises of healthy, organic food, but then go off and smoke weed that's loaded with all kinds of chemicals. They won't eat a conventionally-grown cantaloupe, but they'll smoke weed that could possibly contain pesticide residues at levels 1,600 times the legal digestible amount.
According to chemist Jeffrey Raber from the University of Southern California, as much as 70 percent of the pesticides found in marijuana is inhaled when smoked.
The Eureka Times-Standard reported on Raber's findings, writing …
“I think that what’s so alarming to us is that such a huge amount of pesticide material could be transferred,” Raber said. “And, you have to consider that when you inhale (something), it’s much like injecting it directly into your blood stream.” …
Raber said it’s important to remember that smoking a marijuana bud that’s been sprayed with chemicals is far different than eating a non-organic tomato. First and foremost, he said, there are no controls over what’s sprayed on marijuana crops. And, while most people would rinse off a tomato before eating it, they can’t wash a bud before putting it in their pipe. The body also has filters in place for things that are ingested, he said, but not for what’s inhaled.
“You don’t have the first pass metabolism of the liver,” he said. “You don’t have the lack of absorptivity going through the stomach or the gut lining. It’s a very different equation when you’re inhaling.”
In these early days of legalization, pesticide use and abuse in the legal marijuana industry is very real. Over the past couple of years especially, we've seen a number of pesticide scandals in Colorado, California, Oregon, and Washington. And these will likely continue for years to come as the industry races to keep pace with consumer requests and regulatory standards.
That being said, there's clearly a demand for organic cannabis.
OrganiGram (TSX-V: OGI) is a cannabis stock that's done quite well as the comany's enjoyed meteoric growth over the past two years.
It's also the only pure-play organic cannabis stock in North America. And while some companies are offering organic strains now, OGI remains committed to primarily growing organic. And this dedication will allow OrganiGram to maintain its status as the clear leader in organic cannabis in the Canadian market.
But what about the U.S. market?
While the market in Canada is clearly about to crush the U.S. market, thanks to the end of prohibition in Canada, demand for organic cannabis in the U.S. is quite robust. In fact, of the few dispensary owners I know that sell organic cannabis, none can keep it in stock. Demand is simply out-pacing supply. And that, dear reader, is an opportunity.
HiFi Farms is an Oregon-based organic cannabis cultivation company.
In 2015, HiFi established a proof-of-concept with a small cultivation operation. It was very successful, and now the company has secured a 50
-acre farm and a few million dollars from a select group of investors.
This, my friend, is the sweet spot.
This is ground-floor.
Only a select group of investors even have access to this deal, and that's one of the reasons I like HiFi.
Another reason I like this outfit is because with its small 320-square foot facility, it started generating $35,000 a month in revenue. Now imagine what that's going to look like with 50 acres.
Meriwether Group sure has.
This premier consultancy and investment banking firm actually became part owner in Hifi during the summer of 2016. Analysts at Meriwether have gone on record saying that Hifi could become a $100 million business. I agree.
Now I fully admit that I'm a huge fan of the organic cannabis market. Although it still only represents a very small segment of the overall market, it's also a very lucrative one due to market demand and price premiums that will ultimately favor growers the most.
We saw this in the organic food space, and we're going to see it now in the legal cannabis space, particularly in Oregon where there's a very large population of organic consumers. Baby boomers and millennials in the Beaver state find common ground in things like sustainability, organic agriculture, and social responsibility.
Truth is, if there's a place to set up an organic growing operation in the U.S., Oregon is the place to do it.
Not only is there demand for “all things sustainable” in Oregon, but the Oregon market for legal cannabis is massive.
In 2015, Oregon consumers bought more than $250 million worth of cannabis. By 2020, that number is expected to reach $464 million, according to data analytics firm New Frontier.
Even with organics only claiming a small percentage of this market, it's still a huge opportunity given the limited availability of organic cannabis in the state. Basically, you have a small handful of organic growers supplying an ever-growing demand for quality, craft organic cannabis. And in this space, Hifi Farms is the clear leader.
Cannabis can be consumed in a variety of ways.
No longer are consumers restricted to little more than the traditional smoking of the flower. Today, we have access to everything from high-tech vape pens to a variety of edibles. The latter, by the way, is the fastest growing segment of the legal cannabis space. It actually made up about half of the $5.4 billion legal cannabis industry last year.
Of course, while edibles represent an insanely lucrative market, it's still in its earliest stages. And as a result, there are a lot of edibles on the shelves and behind the counters that have many flaws.
One of the biggest complaints is that it takes so long for edibles to kick in. We're talking anywhere from 45 minutes to two hours. So basically, if you consume edibles you pretty much have to carve out a chunk of time to enjoy the benefits.
But there's a new development that offers a solution to this problem.
Mirth Provisions, Inc.
Mirth Provisions is the creator of a new product called Drift™
Drift is a fast-acting sublingual spray that offers the ease of a vape pen, but without the smoke. And the best part is, it can take as little as 90 seconds to start working. All you have to do is spray it under your tongue. That's it.
Think of this as the Binaca breath spray of cannabis. That's essentially how it works.
Now the rapid release of effects is a huge advantage with this option. But there's more to this cannabis spray than just its fast-acting results.
You see, another complaint about edibles is that dosages of THC tend to vary.
To give you an example of what I mean, I once bought a bag of cannabis-infused chocolate chip cookies in Denver. There were ten in the bag, each containing 10 mg of THC. I can tell you that I was affected in a different way every time I ate one.
This isn't an issue with Drift, as each spray contains an exact dosage of 1.6 mg of THC. You can actually control the entire experience, never having to worry about the dose being too strong or too weak. And you don't have to wait two hours to figure it out.
As an occasional consumer of edibles, I can tell you that there is no THC delivery system more appealing to me than Drift. And I'm not the only one who thinks this way.
These days, a lot of professionals consume legal cannabis. Many have always consumed, but now, in a number of states, they can do it legally. That being said, smoking in public is pretty much banned, and quite frankly there's still a bit of a negative connotation associated with smoking.
Let's face it, how many folks really want to see their doctor, lawyer, or accountant smoking a joint on their way to meet a client or patient?
But with the Drift spray, no one will look twice. The bottom line is that there's real demand for cannabis consumption devices that don't look or operate as typical cannabis consumption devices. Edibles have solved that problem to a point, as a cookie or bag of pretzels will not draw negative attention. But again, the long wait times and inconsistency of dosages still make it difficult for consumers to enjoy cannabis without any kind of inconvenience. Mirth has solved this problem with Drift.
A few other things I like about Drift …
1.) It's healthier than smoking
2.) Mirth infuses the cannabis into an organic, cold-extracted peppermint oil
3.) The cannabis used is locally-sourced.
While the Drift product alone was enough to get my attention, this is only one part of the Mirth story.
The Coca-Cola of Cannabis
Drift is a brilliant product that I believe will soon become one of the most sought-after cannabis products in the market. But Mirth's claim to fame is actually a cannabis-infused drink called Legal.
Legal is a sparkling tonic that's unlike other cannabis-based drinks in the market.
You see, most cannabis-based drinks available today are little more than sugar water, low-quality cannabis, and a variety of questionable chemicals and artificial flavoring and colors. Legal actually uses all-natural ingredients, a natural plant-based emulsifier, and local ingredients where possible. It's the next evolution of cannabis-infused drinks. And it's working.
Mirth closes 90% of the dispensaries and retail stores it calls on, and it's operating profitably in three states. The product is available in more than 200 stores, and the company's been featured in CNN, Time, the New York Times, Bloomberg, The Guardian, and Fox. But most importantly, the drink actually tastes delicious.
Admittedly, I'm a bit of a food snob, and I can tell you I'd happily pay $5 for a bottle of Legal, even if it wasn't infused with cannabis. The Lemon Ginger was my favorite, but the company has three additional offerings with a new coffee product coming soon.
While I love Legal, I maintain that it will be the company's Drift™ spray that's going to make Mirth Provisions a household name.
Steep Hill Labs
In 2015, Merrill Lynch released a research report called, “Medical Cannabis has high POTential.”
Despite the desperate attempt at being clever with the title, the report is still quite telling. After all, this was really the first time a major bank has showed its stripes on legal marijuana. And in this case, those stripes were bullish.
Analysts noted that the legal marijuana market could soon be worth in excess of $10 billion, and they were particularly bullish on what they call “life science tools.” This is essentially equipment that's used to test cannabis for potency and quality. The report suggested that estimates for the equipment market could reach $100 million in less than four years.
When the report was first leaked, investors were scrambling to find a public company operating in this space. But there are no quality pure plays. There are, however, a couple of private companies that are making very big moves right now.
Steep Hill Labs
Steep Hill is a cannabis science and technology firm with three company-owned labs in California, Washington, and New Mexico, and two licensed labs in Colorado and Nevada. The company has also sold a license in Oregon.
Steep Hill's core business is testing and analyzing medical and recreational cannabis to ensure compliance with public safety standards. This is of particular importance in California where the California Medical Marijuana Regulation and Safety Act requires testing and labeling starting in 2018.
Basically, medical cannabis sold to patients will be subject to specific requirements, including testing for potency and contaminants. This is what Steep Hill has been doing since 2008, and it's already active in the Golden State – the world's sixth largest economy.
Of course, California isn't the only state that will soon mandate testing. There are 15 other states that either currently mandate testing or soon will.
Now think about this for a moment.
By 2018, in order for any medical marijuana company to sell its product in most states where medical marijuana is legal, it will – by law – have to have that product tested. State government mandates are essentially guaranteeing business for testing companies. But here's the rub …
There's really only one testing company in the United States that has the experience, track record, and proper technology to provide the high level of testing that's mandated by these state governments. There are a few smaller outfits that are scratching and clawing to get a piece of this market, but Steep Hill already has first mover advantage. In fact, within the industry itself, Steep Hill is essentially the “known” brand. If it were a beverage company, it would be the Coca-Cola of the industry.
More than just Testing
Now having exposure to the testing space is paramount for any legal cannabis investor. It's such a huge part of the fabric of this industry, it simply cannot be ignored or trivialized. Sure, it may not seem as exciting as a grow operation or high-end dispensary. But I'll tell you this: It can be a hell of a lot more profitable.
To be honest, Steep Hill really isn't a cannabis company. It's a tech company, and does a lot more than just testing.
Steep Hill actually has a cannabis genome research program.
You know how doctors have mapped the human genome, right? Steep Hill is using similar technology with cannabis genetics. And it's using this technology to help growers identify genetic markers that can be used in the breeding of unique strains or the choice of the correct strain for use in treating medical conditions.
This is basically the holy grail of services.
These genetic tools when combined with the company's already existing strain chemical profiling program, will ultimately provide patients and doctors with better ways to identify the important medical compounds and properties they're looking for.
Another great thing about this kind of genetic testing is that growers can quickly identify which of their seedlings are male. This is incredibly important because one male plant could destroy an entire crop.
Steep Hill can determine which seedlings are male plants at a much earlier state in the plant's life cycle than can be achieved without these genetic tests. This is a big deal because early identification allows growers to remove the male plant much earlier than by utilizing current methods. And this saves the grower a lot of time, energy, and resources. Not to mention, it helps increase crop yield.
Again, it's these little things that most legal cannabis investors don't know about. But they're really not “little things” at all. A male plant in the wrong place at the wrong time could destroy an entire business in a matter of weeks.
This testing service can also predict CBD and THC levels, it can detect viruses and offer plant health diagnostics. No other company is as far along right now in genetic testing as Steep Hill.
Another service/product that Steep Hill offers is called the QuantaCann. This thing is awesome.
It's a small piece of equipment that provides instant potency and moisture analytics (along with important analytical information with respect to marijuana samples) in just 60 seconds. Folks, this right here is a game-changer.
This system allows growers and sellers to perform a series of tests in real time and in a much more cost-effective manner than taking samples to a laboratory. And law enforcement loves this.
Today, if a regulator wants to do a surprise check on a grower or seller, it has to take the samples to a lab and wait for the results. This is incredibly inefficient as the grower or seller (if he or she knows that the sample is tainted), can simply dispose of that batch before the regulators come back.
The QuantaCann completely rectifies this problem. And while not a lot of folks are talking about this angle too much, I believe this QuantaCann will eventually be standard issue for regulators.
As I mentioned, Steep Hill is the clear leader in this space. Operating in nine states and the District of Columbia, no other testing company has this large of a footprint. And quite frankly, I suspect Steep Hill will so be swallowed up by some huge corporate behemoth looking to get into the legal cannabis space.
PROHBTD Media, Inc.
Everything you see and hear today was strategized by media gatekeepers yesterday.
The tech gear you buy, the politicians you vote for, the music you listen to. For better or worse, there isn’t much in our daily lives that hasn’t been delivered to our front door by the smartest people in the media business.
Want to read about the latest tech gadgets? Wired, Popular Science, and CNET have you covered.
Want to learn about the latest health and nutrition trends? Men’s Health, Prevention, and Muscle & Fitness have you covered.
Sports fan? Then you know all about Sports Illustrated, ESPN Magazine, and Golf Digest.
Of course, these aren’t just a bunch of magazines and websites. These are multi-million-dollar lifestyle media brands.
Take Men’s Health, for instance. This lifestyle brand pulled in $188 million in revenue in a single year. Sports Illustrated: $413 million, Better Homes & Gardens: $352 million, and People Magazine: $751 million.
This ain’t chump change, and it’s the reason we see hundreds of new lifestyle media brands enter the market every year.
Of course, most fail because there’s just too much competition in certain segments. Let’s face it: Unless you’ve been gifted a few billion dollars to start a new brand, it’s nearly impossible to compete in the sports, entertainment and tech spaces.
That being said, the money is so good (if you know what you’re doing), that it’s hard to ignore the temptation of getting into the lifestyle media space.
The trick, however, is tapping into new markets early. And there’s no market more ripe right now for a lifestyle media brand than the legal cannabis market.
Although the legal cannabis market continues to grow rapidly, it’s still very young. And when it comes to media and brandings, it’s incredibly fragmented.
However, the folks that can create the perfect lifestyle media brand in the legal cannabis space stand to make a fortune. We’re talking revenues in excess of $65 million a year in just five years. This, based on a recent analysis from the private global investor network, Seraph.
And that’s why I’m incredibly excited about PROHBTD.
PROHBTD Media, Inc.
PROHBTD is the premier lifestyle media company operating in the cannabis space.
Launching in 2015, PROHBTD has become the biggest lifestyle destination for original video, information, stories and curated products and services for the cannabis community.
This isn’t some random website, blog or magazine. This is a full-service, vertically-integrated media and e-commerce company focused exclusively on the cannabis sector. Not only does it own its own content platform and content studio, but it also maintains a content distribution network and original talent productions.
To put this in perspective, if PROHBTD were in the comedy business, it would be the Funny or Die brand. A company, by the way, that utilizes a similar platform and pulls in an estimated $40 million a year in revenue.
PROHBTD’s original video content is really what sets it apart from everything else. Check it out …
- 9 original series in production
- More than 100 videos produced to date
- Most videos are 3 to 5 minutes in length
- Video times range from 90 seconds to 15 minutes
- All videos are produced and owned by the company
- Over 900,000 organic views
- 90%+ average veiw-through-rate on marquee shows
- About 1,000 original articles and stories5 original series are in development
- Two are co-produced by Emmy Award Winners
There are a number of great portals specializing in content for the cannabis consumer, but without a doubt, PROHBTD's content offerings are far superior on so many levels. PROHBTD isn't just a random portal, it's a media machine that can provide quality content for its users while successfully monetizing its content offerings.
There are plenty of other new and exciting legal cannbis companies set to shine in 2017, but these five are the ones to watch.
Of course, none of these companies are public, so if you're looking for a few quality legal cannabis stocks that you can invest in, check out our top three legal cannabis picks 2017, which you can access here.