In 2019, investors in the cannabis sector were sorely tested. If they are still in the game, the one question they need to answer is: will 2020 be better or worse?
Those leaning toward better, especially in the Canadian market, point to the derivative cannabis products hitting retail shelves. The much touted cannabis 2.0 products, which include edibles and infused beverages, went on sale to consumers in the largest province of Canada on Monday. And the rollout in other provinces is imminent.
A total of 59 new products were offered for sale by the Ontario Cannabis Store, the official provincial marijuana distributor. The products are expected to be available for purchase online as of Jan. 16.
It's anticipated that the array of new products will attract a fresh segment of consumers to marijuana-based products, including individuals who are not smokers. The edibles, which also will have a much larger profit margin, should help Canadian firms struggling to reach profitability. They are also expected to make it more difficult for black market distributors to compete.
Optimism Over U.S. Legalization
Optimistic types also are pointing to growing numbers of U.S. states that continue to march toward legalization. About eight – possibly even nine – states will hold referendums on legalization of marijuana in 2020. Most, if not all, will likely see the legal restrictions dropped. As well, the probability of federal legalization will take a giant step forward. Among the states considering the option to legalize are Missouri, North Dakota, Idaho and Wyoming.
But there are several industry watchers and analysts saying that 2020 could be worse, especially at the beginning of the year.
Where the beginning of 2019 was marked by major strategic partnership agreements with big-named players in other industries – like brewers – the start to 2020 is expected to see mergers, consolidations and bankruptcies. Fueling this trend is an imminent lack of cash. Reports of greenhouses for sale, layoffs and writedowns on unsold stock are not hard to find. For the big players, it could very well be a situation where it gets worse before it gets better.
Two Leading Performers
Not every company in the cannabis sector had a bad year in 2019. Two extraction firms performed like rock stars – Valens Groworks (OTC:VLNCF), (TSXV:VLNS) and Medipharm Labs (OTC:MEDIF), (TSX:LABS).
Based in Kelowna, B.C., Valens is a vertically integrated cannabis company that specializes in proprietary extraction systems essential for the process of infusing other products with cannabinoids and terpenes. Traded in both Canada and the U.S., it has seen its stock increase more than 112% on the U.S. OTC market in the past year, while offering returns of just over 105% on the TSX VIX exchange in Toronto.
As for Ontario-based MediPharm Labs, which specializes in purified cannabis concentrates, its stock has increased just under 128% in the U.S. and just over 120% in Canada.
Both these firms are under contract with other larger cannabis companies to extract oils that are then used in edibles, beverages and topicals, all of which will see their demand increase as these products hit the retail market in Canada.
Valens also still has a fairly low valuation per share. It closed yesterday at CA$3.45 in Toronto, down 4.7% and at US$2.65, down 4.68% on the day.
MediPharm closed down, too, yesterday, hitting US$2.93, a 6.54% drop on the day. It closed at CA$3.79 in Toronto, down 6.42% on the day.