What to look for in the Cannabis Stock Market in 2020
By Leonard Kraus
2019 was a brutal year for the cannabis industry. The 15 largest publicly traded cannabis firms lost a total market cap of $35 billion since end of April until end of 2019. Kevin Murphy, Chairman and CEO of Acreage Holding, said "this is (like) 2008 for the cannabis industry". In 2020, the global virus pandemic is not making things any easy for the pot stocks.
Investors treat cannabis firms like any other business, seeking solid foundations, high-quality products, and profitability. People are still buying the dream. They still want to invest into the industry because they see opportunity in the longer term. But, ‘perhaps one day’ is no longer good enough for investors.
Canadian Cannabis 2.0
Many of the cannabis industry's titans are based in Canada, where they enjoy nation-wide legalization and access to US investors. Unlike US cannabis companies, they're not breaking federal laws, so can list publicly on US stock market.
Before the global COVID-19 pandemic, the consulting company Deloitte projected Canada's legal cannabis sales in 2019 could reach up to $4 billion and the market is about to get a big boost as new products come online. In Canada’s first year of legal cannabis, sales were essentially limited to cannabis plants, its flowers, and oils. Now, Canada’s licensed producers are able to sell edibles, beverages, vapes, and topicals, such as lotions and balms. Canada opened up applications for these products last October with a 60-day notice period, the first products are hitting shelves.
US Cannabis Policy In 2020
Stateside, the US continues its messy, uneven, and incremental march toward cannabis legalization. At the federal level, the Secure and Fair Enforcement Banking Act (SAFE), and the Cannabis Opportunity Reinvestment and Expungement Act (MORE) are making their way through the House and Senate.
The SAFE Act, which passed a House vote in September last year, would allow cannabis companies to access banking and financial services they currently cannot due to federal prohibition. Cannabis companies would gain access to business loans, rather than having to dole out equity in exchange for private investment.
The MORE Act would decriminalize the plant and offer an avenue for people charged with, or convicted of, some cannabis-related crimes to expunge their records and avoid further penalties but it stands little chance in a GOP-controlled Senate.
Of course, if either piece of legislation got past Senate Majority Leader Mitch McConnell who opposes legalization, they would have to also get the signature of President Donald Trump. Trump has opposed legalization legislation in the past but in an election year, that may change.
States Legalizing Cannabis
On January 1st, Illinois the sixth most populous US state followed Michigan to become the 12th state where recreational cannabis can be legally sold, in addition to the 33 states where its medical use is legal.
Illinois is also significant because it is the first state to legalize cannabis through its legislature, rather than ballot measure. Arcview's Troy Dayton sees this as an indication of real political progress on the issue. A recent Pew Survey found that fewer than one in 10 Americans support keeping cannabis illegal.
CBD And The FDA
Some fun facts: A recent Gallup Poll found that one in seven Americans say they use cannabidiol, also known as CBD, and according to the Grocery Manufacturers Association, three out of four Americans believe the Food & Drug Administration (FDA) is regulating CBD.
The Farm Bill effectively removed hemp (which is just cannabis containing less than 0.3% THC) and its derivatives including CBD from the classification of "no currently accepted medical use and a high potential for abuse". The FDA has continued to emphasize the agency has yet to evaluate or regulate CBD products aside from a single approved drug, Epidiolex, to treat epilepsy in children.
Cannabis Science In 2020: The Next CBD
One immediate effect of the Farm Bill, however, was that it cleared the way for research into hemp-derived CBD and the countless symptoms scientists are trying to treat with it.
Ziva Cooper, research director of the Cannabis Research Initiative at the University of California in Los Angeles, says she hopes to see more "stricter, double-blind, placebo-controlled trials" of CBD for different diseases and symptoms in 2020 because of the "exploding demand." And that is just the start.
CBD is just one of hundreds of naturally occurring chemicals in the cannabis plants, and the US National Institute of Health (NIH) announced a series of grants in September 2019 to support the research of other lesser-known cannabis-borne compounds for treating symptoms such as arthritis pain and inflammation. Already, marketers and the media are talking about the "next CBD".
High-Demand Cannabis During The COVID-19 Pandemic
Cannabis sales hit new highs ahead of lockdown measures, but some deliveries have not arrived in the midst of the pandemic and people is still seeking to stock up. Could there be any future bottlenecks?
According to cannabis industry analytic firm Headset, pot sales in the United States spiked in mid-March, with sales growth peaking at 64% in the week ended March 16th, the highest growth rate since the beginning of 2019.
But after people had apparently replenished their stockpiles for fear of dispensaries might be closes amid virus shutdown, sales decelerated during the last two weeks of April to the "mid-to-high-single-digit range" the Headset analysts said.
In the course of April, most US federal states surprisingly declared cannabis am "essential good" like groceries, allowing pot dispensaries to offer curbside delivery.
However, the global pandemic might make investors more cautious, and the cannabis industry is still fairly new hence requires much funding and lobbying.