Feb 15, 2020 (KD Market Insights via COMTEX) — Although weed saw much red ink in 2019, that could change this year
Arguably the most contentious and controversial investment sector in recent memory, the cannabis market has both riveted and disheartened Wall Street traders. On one hand, legalization initiatives fostered the greatest paradigm shift, transitioning a black market into a legitimate (read taxable) one. But on the other hand, theory doesn’t always translate to expected reality.
That was the case in 2019. Following Canada’s groundbreaking move to legalize recreational marijuana, along with the landmark U.S. Agriculture Improvement Act of 2018, botanical enthusiasts and industry advocates seemingly scored a decisive victory against the conservative old guard. And for the first few months of last year, cannabis stocks appeared to finally make good on its earlier potential.
Instead, the exact opposite occurred. Rivaling storied catastrophes in market history, one by one, the major marijuana players tumbled into ignominy. Although rich with potential, Wall Street wanted assurance that they weren’t just throwing money into the air. When the big cannabis players consistently produced poor earnings results, investors simply had enough.
Still, looking at regions which legalized marijuana, the ability to generate taxable revenue is unquestioned. For instance, Colorado made headlines last June when it eclipsed the $1 billion benchmark for marijuana sales. Furthermore, as the state’s governor Jared Polis stated, the weed industry is “creating tens of thousands of jobs, tax revenue for the state, filling up buildings for landlords and reducing crime.”
So, should investors give the cannabis market another chance? Let’s discuss three pros and three cons so that you can make an informed decision.
Pro: Cannabis on Discount
Aside from the cash bleed that several cannabis-related businesses have incurred, the fundamental narrative of this market hasn’t changed: legal marijuana represents a wholly accretive source of taxable revenue. Furthermore, it’s a job creator that is mostly independent of major geopolitical risks, such as the U.S.-China trade war.
Given that this broader thesis remains intact, what has changed conspicuously is the equity valuation of participant companies. Yes, the counterargument is that there is a reason why cannabis companies are so cheap. Yet despite the terrible news – and sometimes ugly controversies – that have afflicted this sector, marijuana stocks appear to have found a bottom.
From the optimist’s angle, that’s worth something.
It’s also important to note the underlying reasons why the “big four” cannabis stocks floundered: the ongoing supply-chain headwinds in the Canadian retail market.
As reported by The Wall Street Journal, the marijuana industry was unable to match the unprecedented hype that recreational legalization in that country implied. Glenn Mattson, an analyst at Ladenburg Thalmann stated in October 2019 that, “People are less than pleased with the results out of Canada recently. They are unhappy with the lack of retail infrastructure, and the ability to build up that infrastructure.”
Specifically, Canadian regulatory agencies have been slow to review and roll out licenses to prospective cannabis retailers. As a result, we have inefficiencies built into the retail market that only government bureaucracies can impose.
As a prime example, the Canadian province of Ontario currently has over two million adult cannabis users. Yet as of October 2019, Ontario only had 75 cannabis stores, which per capita is a devastatingly low number relative to other provinces. For instance, British Columbia has 830,000 cannabis users but 104 stores to serve their needs.
Rationally, you’d expect the Canadian government to resolve these gross inefficiencies. Either that, or the investor community will have already factored in this headwind as a known challenge. Thus, moving forward, the stage is set for a possible bounce back.
Pro: Broad Product Diversity
When lay observers consider the cannabis market, undoubtedly, several stereotypes of this often maligned industry arises. Although public sentiment about marijuana has evolved favorably over the years, large segments of both the Canadian and U.S. populaces have strong, negative emotions about the controversial plant.
However, the North American cannabis industry has an opportunity for retail conversions based on product diversity. Of course, the overriding imagery of marijuana is the joint, otherwise known among the botanical inner circle as a “fatty.” That said, cannabis has far broader applications and platforms which should appeal to all but the most steadfast conservative individual.
For instance, passing a bong to your grandmother is a high-risk, low-reward endeavor. But imagine introducing “Nana” to natural, hemp-derived ointments to help ease her aches and pains: this facilitates a much more productive discussion, one that doesn’t involve impugning another person’s sensibilities.
And that’s the opportunity available in both Canada and the U.S. In our domestic market, several retailers like Nug Republic have emerged in the scene, offering an array of products to satisfy the entire spectrum of cannabis users.
One of the favorite and best-selling product platforms is the cannabidiol or CBD-infused gummies. The second most potent cannabinoid or organic compound of the cannabis plant, CBD offers many of the same therapeutic benefits of tetrahydrocannabinol (THC)-based medicinal marijuana but without imposing a negative psychoactive effect.
And in gummy form, end-users can discretely enjoy cannabis-infused products without drawing unwanted attention. Moreover, who doesn’t like gummy bears? As a universally desired confection, it’s remarkably easy to share the legal cannabis story in a non-confrontational environment.
Furthermore, the marijuana industry’s product diversity promotes a gradation in platform and potency. Those who started off using topicals may take a step up toward edibles and CBD-infused beverages. From there, products like tinctures or CBD oil can deliver powerful iterations of this natural substance. Finally, users can make the leap toward CBD vaping products or stay within their comfort zone.
As more people learn about the modularity of the cannabis industry, we may see a return of positive investor sentiment.
Pro: A Paradigm Shift in Public Opinion
While the cannabis industry has gained incredible popularity in recent years, this success did not happen overnight. On the contrary, botanical advocates have been pushing for rational marijuana policies for decades.
However, it wasn’t until the 2010s timeframe that the political environment was ready to hear opposing arguments about a long-considered vice. Gradually, though, opinion polls from various sources demonstrated a shift in how Americans perceived the cannabis plant. With concerted marketing and educational efforts, we collectively adopted a better-reasoned approach to marijuana.
Not only that, the results are striking. Back in October 1969, 84% of Americans opposed legalization, with only 12% supporting it. In September of 2019, sentiment almost did a complete 180, with 67% now supporting legalization, with 32% opposing such measures. Given the tremendous swing in public opinion, the social stigma associated with cannabis lessened considerably.
Tim Garcia is an experienced writer working in the CBD and Cannabis space to help educate the general public about CBD and THC. Using his professional experience and education in Rhetoric and Writing, he strives to remove the stigma associated with Hemp and Marijuana products and create an environment where the qualities and benefits of these plants can be researched and understood by the global community. He can be contacted for media inquires and article requests at Tim.Garcia.Inquires@gmail.com.
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