GAEGF
Gage Growth Corp Sub Voting Shs (Canada)
stock OTC

# Introduction
The cannabis market is an emerging market in the US. Multiple bills are making their way through Congress, both partisan and bipartisan bills emanating from the House and Senate.  Banks, pharmaceutical companies, distributors and investor organisations are heavily lobbying Congress for this legalization.  It has positive economic, public health and federal revenue impacts with little to no downside. If there ever was a time for legalizing cannabis in the US at the federal level, now is the time.  This post evaluates the potential market, its growth potential and overall players (some which I am well invested in) in the market as well as consider other international markets where cannabis has already been legalized.
# Canadian Cannabis Market
Many here warn cannabis investors about the Canadian market and how things have turned out for Canadian weed stocks. That warning would be well considered, though, there are some key differences between the US and Canadian markets.
While cannabis has largely been legalized in Canada since 2018, the Canadian cannabis market is still relatively new with a large diversification of players that are only now seeing the beginning of the M&A phase of the industry.  Canada can be used as a rough template for legalization in the US but only to a degree of consumer adoption. Even then, consumer use of cannabis in Canada would be fractional compared to the US. 
Canada has a different health care system which dampens the profit generation of their pharmaceutical and healthcare industry.  Furthermore, Canadian cultural preservation regulations limit what can be imported and/or consumed by consumers. Additionally, the Canadian population is largely much happier than the average American.  More days off per year, better labor regulation, universal healthcare and minimum standards of living all create a generally happier population.  This happiness leads to smaller per capita consumption of alcohol in Canada relative to the US.  While the population of Canada is about 10% of the United States, Canadian alcohol revenue is only 3% the size of the US market. Canada’s alcohol market is 8.3 billion USD vs. US alcohol revenue at 249 billion as of 2021. As such, Canada cannot be viewed as a reasonable model for market size and revenue projection in the US when it comes to cannabis recreational use. Similarities exist when comparing most European nations that have legalized the recreational use of cannabis.
# US Market Size
As of 2017, [US is the leading consumer of cannabis](https://www.inc.com/minda-zetlin/us-leads-the-world-in-cannabis-consumption-and-were-feeling-fine.html) in the world. In addition to raw recreational use, other consideration in the US domestic use of cannabis resides in offsets for OTC pain mitigation as well as sleep aids.  The author assumes that some portion of the legal US cannabis market will be used for OTC pain relief and sleep aids.  Even at 1% of the pain relief market, that is 26 million in revenue with a CAGR of 3.7%.  Likewise, 1% of the sleep aid market would be realized as a 300 million revenue per year with a CAGR of 4.8%.  
Finally, like pain and sleep, it is expected that cannabis use will offset some of the alcohol market.  Assuming this is around 1% of the alcohol market, that is around 2.5 billion additional revenue. When OTC medications and alcohol offsets are considered, the market of cannabis in the US would have a potential 3-4 billion boost through cannibalization of other markets. That’s a conservative estimate given the cost of cannabis is about $0.06 / mg whereas alcohol is roughly 10x that at the cheapest levels.  If you account for this cost factor, after the reduction of social stigma associated with cannabis use, you could potentially see US cannabis eating up a larger percentage of the alcohol market.  Presently the legal cannabis market in the US is at [17.5 billion 2020 according to Forbes](https://www.forbes.com/sites/willyakowicz/2021/03/03/us-cannabis-sales-hit-record-175-billion-as-americans-consume-more-marijuana-than-ever-before/?sh=199e74fb2bcf).  Recreational use in the US alone is [projected to reach $42 billion by 2026](https://www.statista.com/statistics/933384/legal-cannabis-sales-forecast-us/) without any form of federal legalization.  Considering the above factors, the author predicts that if legalized in 2022 the total revenue from cannabis in the US could be two to three factors above current projections.
# US Players
A good breakdown of US players can be found here, ranked by annual revenue: [https://www.newcannabisventures.com/cannabis-company-revenue-ranking/](https://www.newcannabisventures.com/cannabis-company-revenue-ranking/)
NOTE: in the list above are some agricultural companies, like SMG, which are going to benefit from the cannabis industry indirectly, but since they have strong influence in that industry, they are considered players.  This DD will start with the top ten players based on **adjusted operating income**. This is because any cannabis company operating in the US legally should have positive cash flow that would be set aside for growth and future M&A activity. Of the players from above, sorted by this metric, we have (quarterly adj. op. income shown in **millions**):
1. Trulieve OTC: TCNNF $83.0
2. Green Thumb Industries OTC: GTBIF $58.1
3. Verano Holdings OTC: VRNOF $43.1
4. Innovative Industrial Properties NYSE: IIPR $36.3
5. Turning Point Brands NYSE: TPB $17.1
6. Marimed OTC: MRMD $12.0
7. Ascend Wellness OTC: AAWH $11.6
8. TerrAscend OTC: TRSSF $11.3
9. Village Farms NASDAQ: VFF $8.1
10. GrowGeneration NASDAQ: GRWG $4.7
Next, when we consider the above companies sorted by YoY growth, we have:
1. Verano Holdings 320%
2. Marimed 239%
3. Village Farms 212%
4. Ascend Wellness 128%
5. GrowGeneration 111%
6. Trulieve 78%
7. TerrAscend 72%
8. Innovative Industrial Properties 57%
9. Green Thumb Industries 49%
10. Turning Point Brands 17%
It should not be a surprise that the fastest growing companies have the least adjusted operating income, as they are spending most of their revenue on growth if they want to be a player during the M&A phase of this market expansion.
Because of the explosive growth potential, we do not want to ignore QoQ growth as this is an indicator of momentum should federal legalization come within the next twelve months. Consider the same companies above, sorted by QoQ growth:
1. Verano Holdings 64%
2. Marimed 32%
3. Village Farms 26%
4. Ascend Wellness 13%
5. Trulieve 11%
6. TerrAscend 10%
7. Innovative Industrial Properties 10%
8. Green Thumb Industries 5%
9. GrowGeneration -8%
10. Turning Point Brands -11%
This puts the focus on three clear and potential growth winners: **Verano Holdings, Marimed and Village Farms**, in respective order for the largest potential gains in the market.
For safe plays, one could go with **Truelieve, Innovative Industrial Properties and Green Thumb** as these have the most favorable financial positions between cash and growth.
Other honorable mentions that are in the top 2 in at least two categories would be:
**Company** **Ticker** **QoQ** **YoY** **Adj. Op. Income (millions)**
Schwazze OTC: SHWZ 59% 467% $4.4
Ayr Wellness OTC: AYRWF 56% 222% -$24.9
Gage Growth OTC: GAEGF 50% 130% -$5.8
Planet 13 Holdings OTC: PLNHF 38% 205% $-0.6
Columbia Care OTC: CCHWF 19% 260% -$8.2
4Front Ventures OTC: FFNTF 18% 114% $0.7
Jushi Holdings OTC: JUSHF 14% 220% -$4.2
It should be noted that most of the above honorable mentions exhibit negative adjusted operating income are expending most of their income on growth.
# Future Growth
With the US cannabis market currently at 17.5 billion and the latest conservative projections, without Federal legalization, putting the market at 42 billion by 2026 according to Statista based on analyst data from various think tanks, we can expect with federal legalization in the next 12 months to adjust that by a factor of at least two (accounting for stated where it is not legal along with increased interstate commerce and international trade).  According to Arc Research via Forbes, the US is the single largest consumer of legal cannabis in the world ([https://www.forbes.com/sites/thomaspellechia/2018/03/01/double-digit-billions-puts-north-america-in-the-worldwide-cannabis-market-lead/?sh=351acb886510](https://www.forbes.com/sites/thomaspellechia/2018/03/01/double-digit-billions-puts-north-america-in-the-worldwide-cannabis-market-lead/?sh=351acb886510)).  This is a reinforcement of the standard of living and average happiness points made in the introduction and will drive the capitalistic markets of the cannabis trade in the US for at least the next decade. For US cannabis companies, there will be several that bubble to the top and will serve as winners for a long hold over the next several years.
# What About Canadian Cannabis Stocks
Some Canadian stocks see the future quite clearly and are making moves buying beverage companies and even buying store fronts and cannabis related companies in the US. For example, [Tilray has been planning on US expansion by making acquisitions in the US](https://www.wsj.com/articles/cannabis-company-tilray-sets-blueprint-for-u-s-expansion-11634299200). Canopy Growth also has made similar plays. Companies like these will certainly realize some benefit and growth when the US legalizes cannabis at the federal level. If you are like me and holding TLRY, CGC, you might consider holding these. I plan to as I increase my stake in US based companies. You might consider examination of other Canadian companies that have not made moves that consider US expansion.
# Disclaimer
I currently own at least 500 shares either directly or through calls that expire in Jan 22 of the stocks I mentioned above: TLRY, CGC, TCNNF, GTBIFF and plan to acquire the growth winners mentioned above and flesh out the safe bets.
This is not financial advise. Invest at your own risk.