CBD Extractors Are Disrupting the Cannabis Sector — Here’s How to Profit
- Marijuana stocks are down due to a lack of news, a slow legalization process and profit-taking.
- This subsector in the cannabis industry holds the key to the industry’s future growth.
- Cannabis producers are rushing to sign deals with a few specialized companies before they take off in October.
- Here’s the single best way you can profit from this demand.
Marijuana stocks are easing lower, but don’t panic.
A lot of that is profit-taking. These stocks ripped higher. Readers of our Real Wealth Strategist newsletter just took half a position that was up nearly 150% in only seven months.
A lack of news and the slow grind of legalization contributed to this decline.
However, there is a subsector within the cannabis industry that’s on the rise. And we think that’s the next place for a big gain in this industry.
You see, this small group of companies holds the key to the future of marijuana.
Here’s a look at the role they play and how we could cash in double- or triple-digit gains over the next few months.
The Next Mega Trend in Cannabis
Watch my video below to catch my latest marijuana market update.
Cannabis extractors are specialists in the marijuana industry.
They pull THC and CBD from the cannabis plant with pharmaceutical precision. They find these components in the bud, trim — leaves trimmed off of the bud — and stems of the cannabis plant.
The main difference between the two is that CBD doesn’t generate the “high” feeling that THC gives its consumers.
The crude cannabis oil is super concentrated. One pound can sell for nearly $35,000! Per ounce, that is more valuable than gold.
And this crude oil can be refined into other products. The oil for vape pens, gel capsules, edibles and even drinks can all be made from these derivatives.
These products are attractive to an increasingly health-conscious consumer base. And we have yet to see the full potential of this market.
According to GMP Securities, a Canadian investment bank, these extracts represented 13% of total sales in the fourth quarter of 2018. But that’s because only sales of gel capsules are legal.
Beginning in October, Canada will roll out legalization for all of these products. Drinks will be the last to get the green light in December.
And GMP Securities estimates that marijuana extracts and derivatives will make up 50% of the market in the years to come.
Canada estimates that about 10% of adults use cannabis on a regular basis, while about 80% of Canadians drink alcohol. Infused edibles, and eventually drinks, will tap into this broader market.
Extractors Are on a Breakaway
Investors are slowly waking up to the potential for extractors.
Shares of the top three extractors are up 17% in the past three months.
The broader cannabis sector is down for the same period. The Horizons Marijuana Life Sciences Index ETF (Toronto: HMMJ) is down 13%.
But the rally in extractors isn’t over. It’s just getting started.
Demand Is Set to Surge
Major producers are already starting to secure extract supplies for October.
Canopy Growth Corp. was among the first to secure a major supply deal. It agreed to purchase up to 900 kilograms (1,984 pounds) of cannabis oil from MediPharm Labs Corp. At current prices, that’s a deal valued at over $40 million.
Cronos Group followed suit, signing a $30 million purchasing deal with MediPharm Labs.
Another extractor, Valens GroWorks Corp., signed similar deals with Tilray Inc. and Hexo Corp.
The top producers are ahead of the pack in signing these deals. As October nears, we will see more producers rushing to lock in deals.
That will be the catalyst for shares of extractors to take off!
MediPharm Labs, Valens GroWorks and Neptune Wellness Solutions Inc. are the three largest extractors by market cap.
In the July issue of Real Wealth Strategist, readers received our No. 1 pick to profit from the demand for extractors.
For broader exposure the cannabis sector, consider an index fund like ETFMG Alternative Harvest ETF (NYSE: MJ). This fund carries a basket of major Canadian producers.
Internal Analyst, Banyan Hill Publishing
P.S. Check out my YouTube channel. Hit the subscribe button to stay up to speed on the latest marijuana market news.