The golden-brown oil raced down the tall glass coil. It ended in a large glass ball. The oil mixed with ethanol, shimmering as it swirled along the side of the glass ball. The oil distilled from this mix is the future of the marijuana industry.

I was in a marijuana extraction lab in Ontario, Canada. Tucked away in an industrial park, the gray building was unassuming. But inside was a pharmaceutical-grade lab to pull the THC and CBD compounds out of the flowers and leaves of the plants.

The cannabis sector is still in its infancy, but it is already facing disruption.

That’s because a century of prohibition saw very little research on marijuana. Illegal pot was stuck in the Stone Age. Now entrepreneurs and investors are racing to capture the future of this $500 billion global industry.

Innovating Deals in the Growing Marijuana Market

Canada legalized marijuana in October of last year. But many derivatives remained off-limits. That was to allow lawmakers more time to review health and safety concerns.

Currently, the only extracts available are oils, capsules and sprays. That leaves something to be desired for use in social settings.

According to GMP Securities, a Canadian investment bank, these extracts represented 13% of total sales in the fourth quarter.

Vape pens and infused edibles will hit the Canadian market in the next six months.

That will open the cannabis market up to the larger health-conscious population.

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.

GMP Securities estimates that marijuana extracts and derivatives will make up 50% of the market in the years to come:

Marijuana Smokables vs. Extracts

Major producers are looking to outside extractors to supply them with the THC and CBD oils needed for the coming rush.

Industry leader Canopy Growth Corp. recently signed deals with extractors MediPharm Labs and HollyWeed.

MediPharm could supply Canopy with up to 900 kilograms (1,984 pounds) of cannabis oil. At current prices, that’s a deal valued at over $40 million.

HollyWeed will process an undisclosed amount of Canopy’s product into oil. These deals offer insight into the demand that Canada’s largest marijuana producer sees for oils and extracts.

To hear more about this mega trend, watch my video below. Or click here to be redirected.

Extractors Are Taking a Global Approach

Canada’s extractors have their sights set on the global market. That’s because Canada’s full legalization and strict health standards unlock demand for these extracts abroad.

Canada uses good manufacturing practices (GMP) to assure quality and consistency in drugs.

These are similar to standards used in Europe, Australia and other nations. Canadian extractors need this GMP certification for their products to reach the domestic market.

It is also a strong first step in obtaining GMP certification in the European Union (EU). The EU is home to over 500 million people. That’s larger than the population of Canada and the U.S. combined.

In the U.S., extractors don’t face the same uniform standards. Each state sets its own rules. That means consumers in the U.S. don’t have access to consistent, standardized extracts.

Legalization in the U.S. would see marijuana fall under control of a federal agency. This means Canadian extractors are more likely to be in compliance with a new federal code.

There are four public marijuana extractors in Canada. These are tiny companies right now, but Front Line Profits readers have our pick for the best Canadian marijuana extractor.

Consider a basket of pot stocks like the ETGMG Alternative Harvest ETF (NYSE: MJ) to capture the broad trend in the booming marijuana industry.

Good investing,

Anthony Planas

Internal Analyst, Banyan Hill Publishing

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