Investing in Cannabis Stocks
The main cannabis companies tend to be listed in United States or Canada – even though many have their production facilities in several different countries. The industry involves two main aspects: cultivation of flower and production of oils for ‘vaping’ and derivatives from edibles to beverages and cosmetic products involving cannabinoids. And companies such as Canopy Growth (TSX:WEED), Aurora Cannabis (TSX:ACB) and Tilray Inc (NASDAQ:TLRY) have certainly attracted interest from investors as they expand their markets in North America – with a view toward moving in a more global scale. The growth of companies such as these will be essential to driving investor interest in the industry because they will act as catalysts for investors to consider the overall cannabis industry. And, also because the big cannabis companies that have made a mark in the markets have also attracted other players from established industries – such as the food & beverage – to join forces. For example, the beverage giant Constellation Brands (STZ) bought 9.9% of Canopy Growth in 2017 – losing a few dozen million to date, to be sure – leading the way for mainstream companies to show an interest in cannabis and helping the path toward overall normalization. It’s too early to tell how this investment will affect the two companies or the industry. But, it is certainly way too early to dismiss or ignore it.
The Marijuana Index Tells a Sad Story, But…
A casual glance at the North American Marijuana Index, which follows the performance of cannabis stocks operating in North America shows that the sector has experienced what can only be described as a roller coaster ride, having dropped from a high of 365.25 to a low of 126.63. At the time of writing, the index remains much closer to the lower number(at just under 130.0) but the trend may have already reversed toward favor, if not quite outright enthusiasm. The summer of 2019 served as a reminder to investors that emerging sectors, such as cannabis, offer few certainties and many risks. Nevertheless, over the course of 2019, it cannot be denied that the legal cannabis industry has grown tremendously – and the revenue figures of the biggest players, whether higher or lower than analysts’ expectations, have tripled or even quadrupled, based on the latest quarterly performance reports. This suggests that the next cannabis stock rally will be based on solid fundamentals rather than the hype that drove some marijuana stocks to double or even triple in the course of a few months between late 2018 and early 2019 – Tilray Inc (NASDAQ:TLRY) anyone? – Meanwhile, the market for medical cannabis is expanding steadily as more and more countries are legalizing and facilitating it.
The engine for cannabis has just started to warm up. If recreational cannabis is legal in 12 States, medical cannabis is legal in 29 States and it’s only a matter of a time before the remaining 21 will follow suit. More significantly, however, the much more nuanced and intelligent public discourse around cannabis and marijuana consumption – for either therapeutic or recreational purposes – has changed the public attitude in North America, Europe and beyond. In other words, the very notion of prohibiting the use of cannabinoids will become antiquated and regressive, prompting legislators and politicians to legalize them at every possible opportunity.
And, if 2019 has seen some successes, 2020 should provide some definitive turning points for the cannabis industry. Not only will Canada have fully implemented its recreational cannabis plan, allowing for the full range of related products from edibles and drinks to cosmetics, but the U.S. market may also become more amenable as the legalization of cannabis may well become one of the main topics of discussion in the run-up to the 2020 U.S. Presidential Election (notwithstanding the desire of candidates ever decide to stop talking about Trump and decide to discuss actual issues of interest to citizens).
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
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