The allure of cannabis investments took a hit in 2019 — as the sector continues its evolution, what are companies in the space looking forward to in 2020?
According to various players in the cannabis industry, the market is now entering a critical time in its maturation process.
Investors are raising the stakes by following stricter strategies and looking for guidance from established institutions evaluating the marijuana stock arena.
A proposed extension of the merger and acquisition (M&A) trend also looms large over the sector, indicating that fewer stocks may be available by the end of 2020.
Here the Investing News Network (INN) takes a look at how representatives from marijuana companies are feeling in regards to the new year and what it may have in store for them.
Cannabis forecast 2020: What are cannabis companies excited for?
Despite the current condition of the cannabis investment market, a variety of companies are looking to turn the page in 2020, and many even expressed excitement for the new year to come.
“We’re optimistic that 2020 will bring a clearer, more efficient cannabis market,” Narbé Alexandrian, CEO of Canopy Rivers (TSX:RIV,OTC Pink:CNPOF), told INN.
Similarly, Christine Hersey, director of investor relations with Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF), said 2020 will be, overall, a positive year for the industry.
While the downturn has caused a sense of worry for the marijuana space in the short term, companies are still bullish on the long-term options at hand.
In Canada, marijuana firms are eager for the rollout of edible and infused items as a way to transition the market and begin offering a variety of new formulations to consumers.
“The potential impact of Cannabis 2.0 (edibles, oils, other derivative products) can’t be overstated,” commented Greg Engel, CEO of Organigram Holdings (NASDAQ:OGI,TSX:OGI).
This transition may open the door to a stronger way for companies to differentiate each other in the eyes of consumers. These products will include the much-anticipated cannabis-infused beverages.
A variety of cannabis and beverage companies have made substantial investments into the development of this product category in Canada. 2020 will prove to be an initial testing round for these items.
While the results for the sale of these new products won’t be felt in the earnings reports of public companies for some time, the opportunity attached to the new market in Canada has companies excited about what’s to come.
“I believe the sector will turn around in the second half of 2020 as companies begin to report better financial results due to rightsizing their capacity and operations,” Jesse McConnell, CEO and director of Rubicon Organics (CSE:ROMJ,OTCQX:ROMJF), told INN.
Engel added that he sees the “early frenzy” attached to cannabis stocks settling down now, especially as the space continues its maturation period. Instead, the executive is expecting to see growth driven less by “promises and more by a company’s ability to deliver against plans and produce a return on capital investment.”
Cannabis forecast 2020: What do cannabis companies want investors to know?
As participants in the market itself, cannabis companies are in constant conversation with their own investors to set the stage for their business operations. Investors in return bring their own expectations.
The crunch seen at the moment has made cannabis companies ask investors to take a closer look when it comes time to make stock picks in the space.
Investor education — in particular due diligence — was a hot issue with the company representatives INN spoke with.
“Investors got burned this year. For 2020, investors should look for performance and solid fundamentals from operators,” Carlos Frias, CEO of GL Brands (OTCQB:FRLF), told INN.
Brady Cobb, CEO of SOL Global Investments (CSE:SOL,OTCQX:SOLCF), told INN he thinks investors should be evaluating profitability and earnings before interest, taxes, depreciation and amortization (EBIDTA) above all right now when it comes to their stock picks.
In the pursuit of reasonable investments, Sproutly Canada (CSE:SPR,OTCQB:SRUTF) CFO Craig Loverock told INN that investors will have to take a long-term look into the sector from now on. He still expects to see volatility continue in the stock market for the short term.
Similarly, Alexandrian told INN stocks in the market market still move in strides, either up or down, as a group rather than based on specific developments.
“In the market’s current state, companies are moving together regardless of what each individual company is doing,” Alexandrian said.
In Alexandrian’s view, true differentiation is still a ways away. “Not all cannabis companies are the same and there are certain differentiators that can drive success or result in stagnation and failure,” Scott Boyes, CEO of MPX International (CSE:MPXI), told INN.
As part of the differentiation needed for cannabis stocks, Guy Chamberland, CEO and chief regulatory officer of Tetra Bio-Pharma (TSXV:TBP,OTCQB:TBPMF), said investors need to become more aware of the difference between medical cannabis work.
“The cannabis companies to watch in 2020 will be the ones making early investments into a consumer focus,” explained Roger Beharry-Lall, vice president of marketing with Lift & Co. (TSXV:LIFT,OTCQB:LFCOF). “The companies that will dominate the next decade will be defined in the next year, so these strategic initiatives will be critical.”
Overall companies hope investors can see and understand which players are performing and which ones are lagging behind.
“This will be a big year for the companies that execute well on their business plans. We will see those companies emerge as leaders and those will be the ones to watch in 2020 and beyond,” Jeff Fallows, president of Valens GroWorks (TSXV:VGW,OTCQX:VGWCF), said.
Cannabis forecast 2020: Investor takeaway
The upcoming year should help clarify some big picture questions about the marijuana industry.
“I think more consistent financial performance from some of the larger players in the market will help restore investor confidence,” noted David Gordon, chief corporate officer at PharmaCielo (TSXV:PCLO,OTCQX:PCLOF).
Companies are hopeful that the effects 2019 had on investors will ultimately benefit the entire sector.
McConnell, the leader of Rubicon Organics, expects to see two lanes open for cannabis companies. As capital becomes increasingly difficult to come by, companies with sound operations and results will be able stand out from the rest.
“These companies should be able to attract investment interest and see their share prices stabilize or gradually appreciate,” he said. “While the other path will see companies still struggling, leading to consolidation or flat out shutdowns.”
Don’t forget to follow us @INN_Cannabis for real-time news updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Hill Street Beverage and Valens GroWorks are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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The product will include polyphenols known to have significant health benefits.
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