This summer was a tough one for cannabis stocks. Market turmoil linked to global trade difficulties did not help and pot stocks faced many challenges with company scandals, regulatory issues, and a decline in investors. Some investors got caught up in the upswing without truly understanding the cannabis market. With Fall just around the corner, and with a reduction in bad execs and ignorant investors, those in the know should turn to solid companies who capitalize on a few key industry drivers. In terms of DC, Trump is indecisive when it comes to many things, but he is fairly motivated when it comes to making money. If he believes that loosening opposition to cannabis at the federal level to be an easy win in the 2020 election, he will likely support it. Companies that would benefit from a Trump-led initiative include Red White & Bloom, Curaleaf Holdings, and Trulieve Cannabis.
In Canada, branded consumables are part of legalization 2.0. Product innovation is picking up speed across the cannabis industry. Customers cannot wait to try the new varieties of edibles that are coming to market. The only concern with regards to edibles is the appeal to children. There is a lot of regulatory scrutiny as they become legalized and available in the market. Cannabis companies are not taking any risks and are controlling the distribution and labeling of edibles and other consumables. From an investor perspective, product innovation will also attract many traditional CPG investors who know how to recognize a successful market segmentation and sales approach.
Companies that stand to succeed with product innovation include Organigram Holdings, Aleafia Health Inc., Cronos Group, Canopy Growth, and Aurora Cannabis. These companies will now benefit from higher margins with previously approved flower, oil, and tincture products. Brick and Mortar stores are also gaining popularity. Cannabis consumers enjoy enjoy the experience of talking to experts and handling product. Canada which is advanced in regulations and facilitation of the cannabis industry is raffling off store licenses for physical retail. Online sales continue to be problematic even in the most liberal markets, so it is good news for listed Canadian companies to get shelf space.
The cannabis industry was quite tumultuous this summer and there was trouble at the top in many key companies ranging from Canopy’s firing of CEO Bruce Linton after disappointing earnings. CannTrust experienced serious Health Canada violations and Namaste’s public clash in the C-suite. Last year, Aphria also had its LATAM scandal in the media. Investors and boards voiced their concerns and replaced those needing replacement. There is hope that the recent purge and the new faces will lead to better decisions and less problems. Clarity in the US could also open the floodgates. There could be a leveling of federal and state regulation in the US that will allow Canadian operations to be brought to scale in the world’s largest economy.