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For big marijuana, Grit win means money in the bank

Those with a stake in cannabis-related companies weren’t just hoping the Liberals would win the federal election, they were banking on it.

Legalized marijuana could be a budding into big business in Canada if the party follows through on its much-publicized campaign pledge, with one analysis projecting a $5 billion market for recreational weed.

The same analysis paints a picture of the path legalization will take, at first mimicking alcohol sales, then becoming subject to potential takeovers by Big Tobacco — a scenario that has long worried critics of Justin Trudeau’s legalization plan.

In a report published the morning after the Liberals cruised to a majority win at the polls, Bay St. investment dealer Dundee Capital Markets valued the current medicinal marijuana market at $80 million, projecting that number to balloon to $1.2 billion by 2024, with the number of licensed patients expected to increase tenfold over the next decade to as many as 450,000 cannabis card-carrying Canadians.

The market projection for recreational weed ranges from $1.5 billion to $5 billion annually.

And the biggest winners on election night, according to the report, were the pot producers already licensed to grow medical cannabis.

Chief among those is Canopy Growth Corp., which operates the Tweed plant in Smiths Falls as part of three properties totalling 500,000 sq. ft. of prime growing space, and the first licensed grower to go public on the stock exchange.

Current Liberal Party of Canada chief financial officer Chuck Rifici is the co-founder and former CEO of the company, and remains its largest shareholder.

The 7.8 million shares Rifici owns in the company netted him a cool $5 million in the days immediately following the election.

A federal Liberal party spokesman said he was not aware of any other high-level Liberal staffers or MPs with an ownership stake in marijuana companies.

A few notable politicians have previously jumped into the pot game shortly after leaving politics.

Former Ontario Health Minister George Smitherman sits on the board of medical marijuana company Thelon Capital, and David Caplan, his successor on the province’s health file, left Queen’s Park to join Nutritional High, a Toronto-based company developing edible cannabis products for the booming U.S. market in states where recreational weed is already legal.

The Dundee report said while the outgoing Conservative government established the current medicinal marijuana network in Canada, the legalization of recreational weed would have been “highly unlikely” had the Conservatives kept power.

But the report could also provide opponents with fodder, predicting Big Tobacco is “the likely candidate to take over large (medicinal marijuana) companies after recreational legalization has been rolled out.”

Dundee believes a “tipping point” could occur if tobacco companies are allowed to distribute marijuana, saying Big Tobacco has a “comparable” business model, the capability to market nationally, growing and manufacturing experience, and the need for new revenue streams.

“It’s no secret that Big Tobacco is hurting,” Salz wrote.

Canopy stock, which had been sluggish since its initial public offering in April 2014, has now been rising steadily since election night.

The report called Canopy “arguably the strongest and most recognizable potential ‘recreational’ brand in the industry,” and noted its “tremendous expansion potential” when advising investors to buy stock.—-Recreational????


But Canopy bested even Dundee’s forecasts, trading around $2.00 on Oct. 19, and peaking at $2.72 by Friday’s closing bell.

“The markets have performed extremely well, even from about a week before the election when it looked like the Liberals were pulling away,” said Salz, with cannabis-related stocks rallying between 20-30% in the days following the election. “The stocks have retained their gains and they’re trading better than they ever have, and there’s a lot more interest in the (marijuana) space ever since this election.”

Salz believes once legalized recreational marijuana becomes a reality — with the firm estimating that day is likely still 18 months to two years away — the markets will rally once again.

“Once you have more of a path towards a framework (of legal marijuana), the impact on these companies will be quite material, and the stocks will trade again on that,” said Salz.

Canopy hasn’t been resting on its laurels, instead following the post-election buzz with a series of announcements. Subsidiary Tweed announced it will sponsor the 2015 High Times Cannabis Cup in Jamaica, another country experiencing sweeping reforms to marijuana laws, and also launched a face-to-face customer service centre for inquiring Canadians. Last week, the company announced a $12.5 million equity deal with Dundee.


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