In October 2018, Canada legalized cannabis for adult use nationwide. Under Canada’s Cannabis Act, adults are allowed to cultivate up to four cannabis plants per household, either indoors or outdoors. Now, almost a year into legalization, more Canadians are taking advantage of this freedom — and are pushing to expand it. 

Take, for example, a nursery in the small town of Petitcodiac, New Brunswick that decided to hold a workshop on home cannabis cultivation last week. They were overwhelmed by the turnout and had to find a bigger venue at the last minute.

“I’ve never seen anything like it,” Bob Osborne, owner of Corn Hill Nursery, told the Canadian Broadcasting Corporation. “We’ve obviously touched a nerve.”

Another CBC report on this year’s home-growing trend quoted Alex Rea, owner of Ontario’s Homegrown Hydroponics chain, who boasted of booming sales — and the obvious reason for them.

“For the price-conscious consumer, if you’re paying around $10 a gram for the varieties at the store, you might be only paying 50 cents per gram or less for a variety you grow yourself at home,” Rea said.  

The report also happily raises the possibility that the Cannabis Act’s four-plant limit may simply go unenforced. The enforcement effort is up to local police, and they don’t seem particularly interested.

“To suggest that we’re going to have teams of officers peeking in people’s backyards to see if they’re growing four plants, it’s just not realistic,” said Don Belanger of the Toronto Drug Squad.

However, there are two Canadian provinces that banned home-growing cannabis altogether: Quebec and Manitoba. Cannabis advocates are fighting the bans — and here, too, they’ve seen progress.

A Judge Rules for Home Grow in Quebec

A key victory for homegrown cannabis in Canada came on Sept. 3, when the provincial courts overturned Quebec’s prohibition on home cultivation. Quebec Superior Court Justice Manon Lavoie ruled that the provincial prohibition infringed upon the jurisdiction of Canada’s federal government by instituting the ban.

The decision means it is now legal to grow your four cannabis plants at home in Quebec, the Canadian Press reports.

The challenge was brought by Montreal resident Janick Murray-Hall — a bit of a professional prankster, and publisher of the satirical “fake news” website World News Daily Report. He argued the ban violated the federal Constitution Act of 1867, which defines the limits of federal and provincial jurisdiction. 

Quebec’s provinicial law imposed a fine up to $750 (in Canadian dollars) for home cultivation — doubled on a second offense. The federal Cannabis Act states that provinces have the right to create “additional rules for growing cannabis at home, such as lowering the number of plants per residence.” But it does not say that provinces can ban home cultivation outright.

Justice Lavoie found that, in fact, they cannot ban home growing. He wrote (translated from the French): “The effect of the provincial provisions is a step backward, as though the new federal law aiming at accessibility and legalization of cannabis had never existed.” 

Nobody had actually been charged yet under the Quebec law.

Manitoba’s Ban Might Topple Next

Over in Manitoba, where there is a similar ban on home growing cannabis, only one person has been charged for home cultivation since Manitoba’s Liquor, Gaming and Cannabis Control Act came into effect last fall, a provincial spokesperson told CBC News.

Cannabis advocates in Manitoba say that’s one too many, of course. And with the ruling in Quebec as precedent, the CBC portrays it as a matter of time before a similar challenge is brought in Manitoba.

Manitoba’s law actually imposes a $2,542 fine for home cultivation. When it was instated last year, legal experts warned that the province could be crossing the line by imposing such a hefty fine, according to the CBC. 

No other provinces have imposed stricter limits than the four plants allowed by federal law — Quebec and Manitoba stand alone in going beyond the federal Cannabis Act. And in Manitoba, home cultivation is still permitted for registered medical marijuana patients. 

The reversal in the Quebec courts may cause provincial leaders to rethink plans to further rein in the cannabis community. Quebec’s cannabis law was passed in June 2018 under the previous Liberal government. The new Coalition Avenir Québec government has announced plans to raise the legal age of consumption from 18 to 21. It also wants to ban the sale of cannabis edibles. 

Homegrow Increasingly Important as ‘Gray Market’ Dispensaries Squeezed Out

Before Canada legalized adult-use cannabis, consumers could often turn to “gray market” dispensaries to purchase their pot, particularly in Vancouver. But now, these dispensaries are fighting for their right to stay open as they face new enforcement and competition. Canada has licensed only a select few dozen Licensed Producers to sell recreational cannabis (and opened government-operated pot shops), pushing out these old-school, smaller retailers.

In May of this year, British Columbia’s Supreme Court rejected a bid from nine Vancouver dispensaries seeking to stay open. In a strange irony, Vancouver is shutting down its long-tolerated but unlicensed cannabis dispensaries — even as British Columbia struggles to meet demand amid a dearth of licensed retail outlets.

David Malmo-Levine, a longtime prominent Canadian cannabis advocate and Vancouver resident, told Cannabis Now he recently sold his share in the dispensary he co-founded, the ironically named Stressed and Depressed — citing the exorbitant fees imposed by the city government.  

“I had to sell my dispensary because I couldn’t come up with the $35,000 [Canadian dollars] per year,” he said. “It’s a rich man’s game, now.”

Without mom-and-pop licensed dispensaries to turn to, home grow is even more relevant for Canadians looking to avoid corporate cannabis.

The state marijuana industry didn’t like what it saw when it got its first look at Maine’s new track-and-trace system Monday: hundreds and hundreds of 25-cent tags required to catalog every plant’s path to pre-rolled joint, vape cartridge or infused candy.

“This will drive prices through the roof,” said medical marijuana caregiver Dawson Julia of Unity. “It’s going to put a lot of people out of business. It will make medicine so expensive that nobody will be able to afford it. It will guarantee the survival of the black market.”

Five hours later, long after most of the 300 shell-shocked growers, manufacturers and retailers had left the track-and-trace kick-off event, the Office of Marijuana Policy issued a clarification. Individual retail products will not require their own track-and-trace tag after all.

The cost of the tag wasn’t the problem. After all, each individual bar-coded label only costs a quarter. It was the sheer number of tags that would have been required to move a plant through its entire life cycle, especially for processed items, like vape cartridges or marijuana-infused baked goods.

Consider that it would have required 1,178 tags, at a total cost of $295, to convert a 10-pound cannabis plant into half-milliliter vape cartridges, based on typical yields. Turning that plant into single-serving 10-milligram chocolate truffles would’ve required 58,900 tags at a cost of $14,725.

“Those are based on averages, of course, but even if the yields vary a little here and there, that’s crazy,” said Darrell Gudroe of Boothbay Harbor, who sits on the board of the Medical Marijuana Caregivers of Maine. “The labor costs of putting (on) all those tags alone would kill a business.”

Under the clarified system, however, the producer would only need a single tag for the plant, a second tag that covered the harvest batch (that could cover a whole room full of plants if the grower harvested them all at once), and a third tag attached to the final package sold to the consumer.

Under this system, the financial impact of the tagging system could be limited if a grower can harvest a whole group of plants at once and if the consumer can buy products in bulk, growers and retailers said. But single-serving products, a favorite among new customers, would still be hard hit.

The Office of Marijuana Policy and BioTrackTHC, the Florida software company that landed the 6-year, $275,000 deal to track medical and adult-use cannabis grown, processed and sold in Maine, apologized for the confusion caused by the dissemination of incorrect information.

The session drew a huge crowd and covered topics ranging from creation of transportation manifests to cover when marijuana is moved from one place to another, such as from a grow to a testing lab, to how cannabis producers who already use tracking software can export their private data into the state system.

More training sessions will be held for medical marijuana industry members this month. Training for a grower, manufacturer or retailer who will be seeking a state recreational marijuana license once Maine launches its retail program in March will begin next month.

Medical marijuana growers, manufacturers and retailers can start using the program before the end of the year, and will be required to have all their plants and products entered into the system no later than 120 days after it goes live, said Office of Marijuana Policy Director Erik Gundersen.

Created eight months ago, the Office of Marijuana Policy has moved quickly to implement the adult-use marijuana program that had lingered on the political back burner since voters approved it in 2016. That haste has led to several missteps when trying to hire professional consultants.

In its after-hours news release, the state did not explain how this happened, or whether the clarification of how the tagging system works corrected a verbal slip made at a live event during a spirited question-and-answer session, or represented a full-fledged change in state policy.

But that clarification left Jennifer Bergeron of Waterville, a wholesale medical marijuana grower, upset about a morning off work to drive to Augusta and spend “a good couple hours getting completely wrong information” from a state agency created to oversee marijuana in Maine and its expert consultant.

“People who are supposed to implement the program in two months just spent hours giving completely inaccurate information,” she said. “At this point, I’m not sure what the tagging requirements are, so it’s hard to say what they mean to me. I know less after that meeting than I knew before it started.”

She worries the additional regulation, with its extra costs and labor, will drive smaller caregivers out of business, which will end up hurting patients. Prices are already going up, she said. She believes this will not stop the black market, but actually drive people to it.

But Paul McCarrier, a medical marijuana store owner in Belfast and president of Legalize Maine, believes Monday’s events demonstrate how responsive the new agency is to industry concerns, such as the financial impact of new regulations and programs that are still in their infancy.

“I’m pretty impressed,” said McCarrier, who sat through the kickoff session and a three-hour caregiver training class on Monday afternoon. “We brought up a legit point and they responded quickly … Shows me again they are taking what we say seriously. They want it to work. We want it to work.”

Investing in cannabis stocks isn't for the faint of heart. The wild up-and-down swings can be dizzying. The risks are real. But the potential pay-off over the long run could be enormous.

Choosing which cannabis stocks to buy involves the same process as investing in any other kind of stock. You'll want to find well-run companies that have great growth prospects, a strong competitive advantage, and a solid financial position.

I think three cannabis stocks check off all of these boxes. Here's why Charlotte's Web Holdings (OTC:CWBHF), Innovative Industrial Properties (NYSE:IIPR), and Trulieve Cannabis (OTC:TCNNF) are top cannabis stocks you can buy right now.

1. Charlotte's Web Holdings

Charlotte's Web pioneered the U.S. hemp cannabidiol (CBD) market. The company, founded by six brothers who were medical marijuana growers in Colorado, developed a strain of cannabis in 2011 that was low in psychoactive ingredient THC but had a high level of CBD by crossbreeding a strain of marijuana with industrial hemp. As word got out that this cannabis strain was effective in treating medical conditions, particularly types of epilepsy, Charlotte's Web's momentum took off.

The U.S. hemp market totaled around $600 million last year. Aggressive estimates call for the market to reach nearly $22 billion by 2022. More conservative analysts project that the U.S. hemp market will total $4.4 billion within the next three years. Either way, Charlotte's Web has a huge opportunity before it.

Charlotte's Web ranks as the No. 1 brand in the hemp CBD market. The number of stores that carry the company's products has more than doubled so far in 2019 to over 8,000 retail outlets, including big chains such as CVS Health and Kroger. No other hemp CBD company claims a higher brand awareness and retail distribution footprint than Charlotte's Web. 

Unlike many cannabis stocks, Charlotte's Web is already consistently profitable. Its revenue continues to skyrocket, up more than 45% year over year in the second quarter. The company has little debt and more than $51 million in cash. Charlotte's Web appears to be in good financial shape to fund its efforts to capitalize on the anticipated massive growth in the U.S. hemp CBD market.

2. Innovative Industrial Properties

Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that focuses on acquiring and leasing medical cannabis properties. The company currently owns 30 properties in 12 states that have legalized medical cannabis. 

IIP's revenue on a trailing-12-month basis has more than quintupled since the company went public in late 2017. This tremendous growth stemmed from the company's simple business strategy of reinvesting cash made from existing leased properties into new properties. With the U.S. cannabis industry expanding rapidly and 33 U.S. states allowing legal medical cannabis, IIP has plenty of more growth opportunities.

Trading on the New York Stock Exchange has given IIP visibility and stature that no other cannabis-focused REIT has. The company is the clear leader in providing real estate capital for the U.S. medical cannabis industry. 

IIP also claims a solid financial position. The company has been consistently profitable for more than two years. It has a low level of debt compared to most REITs. IIP also pays a nice dividend which currently yields 2.7%.

3. Trulieve Cannabis

Trulieve Cannabis operates 31 medical cannabis stores in Florida as well as a statewide home delivery program for medical cannabis patients. The company also has recently acquired cannabis dispensaries in California, Connecticut, and Massachusetts.

Florida is the third biggest state in the U.S. based on population. Its medical cannabis market is growing by roughly 10% per month. Trulieve expects to expand its number of stores in the state to 44 by the end of 2019. The company also has opportunities for growth in the other three states where it owns operations as well as moving into new markets.

Trulieve was the first medical cannabis company in Florida. This first-mover advantage makes Trulieve the dominant player in the state's fast-growing medical cannabis market. Because Florida only awards a limited number of licenses to medical cannabis dispensaries, Trulieve is in a great position from a competitive standpoint.

Based on price-to-sales multiples, Trulieve is one of the cheapest cannabis stocks on the market. But that low valuation doesn't mean the company's financial status is troubling. Trulieve is consistently profitable. It has a manageable debt load. The company also has a cash stockpile of $54 million. Trulieve's financial position should improve even more as it continues its rapid growth.

The second great Canadian cannabis rush is nearing the starting line, with pot entrepreneurs looking to stand out amid an onslaught of soon-to-be-legal edibles on the market.

Legal cannabis edibles and other derivatives are expected to grow Canada’s cannabis market by three million consumers, or 65 per cent, according to a poll commissioned earlier this year by a leading industry data collector.

The survey, conducted with 3,000 respondents last May by Lift & Co. and Ernst and Young, suggests the country’s 4.6 million adult cannabis users will grow to about 7.6 million after a wider variety of non-smokable licensed products go on store shelves at year’s end.

If so, that would see the percentage of adult Canadians consuming the drug grow to at least 23 per cent.

“I think it will be transformative — it will bring a significant cohort of consumers who were not consuming due to stigmatization or the consumption delivery,” said Jon Kamin, Lift & Co. chief revenue officer.

Numerous licensed pot producers and confectioners have been eyeing the market and preparing for the Oct. 17 second phase of legalization, though the products aren’t expected to be available en masse until December or January.

“The race to win legalization 2.0 is on,” said Kamin.

A profit margin that’s expected to be higher among derivatives than the dried flower that’s been legally available since last October is driving that momentum, he said.

That’s because it’s easier to develop premium brands among edibles and other distillates, said Kamin, than it is among smokable weed.

“Differentiation is very challenging when they’re all coming up with versions of the same flower but once you move into the other forms, it’s about what tastes good or smells the best,” he said.

Retail staffers, also known as budtenders, in Calgary and in the survey have said customers have been asking about edibles for some time, though the only ones currently sold are oil capsules.

The survey found baked goods, food additives and confectionary forms are the most preferred delivery methods for edibles among current users.

Most of those long-term users prefer higher-THC content products, something noticed by most retailers, said the study.

But Kamin said there’s room in the market for producers of lower-THC derivatives, particularly for “entry-level” consumers.

Calgarian Evan Mah is counting on just that and is moving ahead with Friendibles, an operation selling kits for homemade cannabis-infused gummies, brownies and cookies with THC of under 10 mg per piece, which is the maximum federal guideline content limit.

“Most people I talk to think (10 mg) is too high, I think it’s too high,” said Mah, who’ll begin running the business with co-owner Ciprian Georgescu out of a West Hillhurst home.

“We see lots of potential.”

Too much of the existing marketing is being done by those whom Mah considers “insiders,” whose connoisseur approach doesn’t appeal to many consumers, especially newer ones.

“That doesn’t speak to most folks — we’re hoping to produce something more down-to-earth,” he said.

The business will raise capital by crowdfunding, with investors receiving an instructional cannabis consumption tool kit.

Alberta Gaming, Liquor and Cannabis said it’s been working with its more than 30 licensed producers to determine what type of derivative products they’ll be offering.

The Lift & Co. survey found many consumers are still put off by the comparatively high price of legal cannabis compared to its illicit counterpart.

“The ability of the legal market to match illicit prices will be a challenge that may never be achieved,” it states.

It also found many consumers view the legal product as inferior to its black market counterpart, that the former is too dry and lacks aromatic qualities.

“If prices are higher, the value add of quality must match such premiums,” states the report.

The group is launching a more comprehensive online effort to collect consumer and retail data on the still-emerging industry that’ll cover ground that’s been largely ignored, said Kamin.

“The data available on cannabis today is really limited to retail sales, it doesn’t tell you who is buying,” he said.