Growth opportunities for cannabis companies in the pet care industry  

by Dilantha De Silva
Analyst, SeekingAlpha.com

 

A quick look back at the history books reveals how certain industries have seen disruptive growth in certain time periods, and early investors of such disruptive technologies or developments not only gained substantial returns on their investments, but also helped shape a new and better world for the others. Examples include the growth of the World Wide Web, Industrial Revolution, the growth of social media and many more.

Today, we are seeing a secular trend in the making centered on an unusual candidate; the growth of cannabis products.

Canada has remained at the forefront in revolutionizing the way investors look at cannabis products, and the Canadian government legalized the use of marijuana back in 2018, and became the first G7 nation to do so.

Along with the legalization of cannabis for recreational purposes, and for use as a medical substance, the cannabis industry is expected to grow at break-neck speeds in Canada, and many other countries are currently considering legalizing the use of cannabis for recreational purposes. On the other hand, many countries including the U.S. currently allow the use of cannabis for medical purposes.

Performance of the North American Marijuana Index since inception

The wide acceptance of cannabis in the medical industry has already resulted in disruptive growth in the use of cannabis as a medical substance, and medical cannabis have been found to provide significant health benefits including relief from chronic diseases, reduced need for mental health medications, and reduced deaths from Opioid Overdose.

A number of Canada based cannabis companies have successfully listed their shares on U.S. based stock exchanges as well, and these stocks have so far provided stellar returns to investors, despite some of these companies are failing to make ends meet at the moment.

The North American Marijuana Index; a stock market index with a focus on North American listed companies that have a business strategy focused on the marijuana or hemp industry, has provided outstanding returns since its inception in 2015.

With 46 constituents, the North American Marijuana Index has gained 170.6% over the last 4 years, which is a significant outperformance of the 38.6% gain of the S&P 500 Index in the same period.

Despite the stellar returns provided by listed cannabis stocks over the last 4 years, and the pace at which the industry has gained traction on a global basis, the global cannabis industry is still in its infant stage in my opinion. As such, I expect exponential growth in the cannabis industry for many years to come, and one such industry that is set to be revolutionized with the use of cannabis is the pet care industry.

Dilantha De Silva
Analyst, SeekingAlpha.com

Outlook of the cannabis driven pet care industry

CBD, or cannabidiol, is a compound found in cannabis, and more importantly is a substance that doesn’t get humans or animals high.

Over the last several years, the use of cannabis in the medical industry has evolved and it’s now considered one of the disruptive forces in the medical industry. However, another industry that is quickly gaining traction is the pet care industry. The pet care industry is expected to grow with the use of cannabis in pet care products for many years to come.

Investors should not consider the global pet care industry lightly, and this is a multi-billion dollar industry with high growth expectations.

The worldwide pet care industry is estimated to be worth $34 billion by 2025, and this presents a robust growth opportunity for industry participants.

                 Source – Statista

Investment Opportunities

Cannabis companies are now tapping into this billion dollar industry, and the successful penetration into this industry provides a great growth opportunity for cannabis companies who are focusing on developing the technology required to disrupt the global pet care industry.

Hemp-derived pet supplies sales were reported at $13 million in 2017, but sales are expected to sky-rocket through 2022 and reach a turnover of $125 million, which represents a Compounded Annual Growth Rate (CAGR) of 57%.

CBD products are expected to provide various health benefits to animals, and as cannabis based products go mainstream, the appeal of CBD products focused on animals are gaining popularity on a global basis.

Investment Opportunities

The macro-economic outlook and the regulatory outlook for cannabis look promising, and this should help the industry grow for many years to come. Cannabis will gain popularity for various uses, and pet care is just another industry that is expected to benefit from the growth of cannabis. In light of these macro level developments, early investors of the industry are expected to realize significant returns on investments as the regulatory framework related to cannabis products provide a boost to the acceptance and popularity of these products.

Investing in a dynamically changing industry needs special care as investors might end up betting their money on unattractive ventures. An important consideration for investors is that a high-growth industry doesn’t assure you growth in all companies representing the industry.

Prudent investors will scan global equity markets to identify attractive risk-adjusted investment opportunities in cannabis companies, and an investment in a cannabis company that specializes in manufacturing and distributing pet care cannabis products might deliver stellar returns for investors in the medium to long-term.

The industry growth seen so far on a global scale has purely been driven by only a few countries that took steps to legalize the use of cannabis for medical purposes. The future looks much brighter as many countries are expected to legalize the use of cannabis within the next few years.

As more countries legalize the use of cannabis for medical and recreational purposes, I expect a higher number of veterinary physicians to embrace pet care products developed with CBD, and this will open doors for the industry to grow at a much faster clip than we experienced in the last couple of years.

In addition, as cannabis gain traction on a worldwide basis, many people would be aware of the health benefits of CBD products, and many multinational organizations will conduct education programs to ensure these health benefits are understood properly by all regions of the world.

At present, many users are skeptical of the use of cannabis in medical products but scientific research has proven time and time again the safety of using such products.