2 US stocks to harness the "green rush"

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Kristoffer Inton: We recently launched coverage of the cannabis industry, and we see massive market growth not fully accounted for in today’s share prices.

Prohibition has kept cannabis largely in the hands of criminal enterprises. However, legalization is gaining momentum. In the United States, 11 states and Washington, D.C. have legalised recreational cannabis, and 35 states have legalised medical cannabis or products that are low in THC and high in CBD. This is despite the fact that it remains illegal at the federal level.

By 2023, we think the US government will no longer prohibit cannabis, instead allowing states to choose the legal status of cannabis within their borders.

Meanwhile, Canada has already legalised recreational cannabis in October 2018, with distribution continuing to expand. Internationally, more and more countries have recognised the benefits of medical cannabis and are expanding access.

With cannabis' popularity already growing organically due to expanded use cases, widening legalisation will further catalyse demand.

Our research indicates that legal cannabis sales will grow nearly 9 times larger their current size by 2030. Large, underserved demand in the US, Canadian, and global medical markets will drive massive top-line growth and fixed cost leverage for cannabis companies, supporting a "green rush" through at least the next decade.

Canopy Growth and Curaleaf are our top picks. Canopy provides attractive exposure across all markets, as well as a consumer-goods-focused strategy. Curaleaf provides pure-play exposure to the US market, where we see growth for both its recreational and medical end markets.


This report appeared on www.morningstar.com.au 2019 Morningstar Australasia Pty Limited

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