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 | | | Is "Cannabis 2.0" a Second Chance for Pot Stocks? | | Matthew Carr | Chief Trends Strategist | The Oxford Club | | | | | Editor's Note: Canada is making history... again.
In June 2018, the Canadian Senate passed the Cannabis Act 56-30.
Then, in October 2018, adult-use sales kicked off in the Great White North.
Now - one year later - Canada has legalized cannabis derivatives (think "special" brownies).
Just a small initial stake in the industry could make you a "Marijuana Millionaire." But you don't want to wait for the rest of the world to flood in... This is your chance.
Matthew has taken multiple triple-digit gains on Canadian cannabis companies in the past. And he has more coming.
Don't let history pass you by. Click here to get Matthew's recommendations now.
- Rebecca Barshop, Managing Editor | | | | | The long wait is over...
Cannabis 2.0 legalization is here!
This is one of the big moments we've been waiting for in pot stocks.
On October 17, cannabis derivatives were legalized across Canada. This includes beverages, capsules, concentrates, edibles, tinctures, topicals, vape pens and more.
For licensed producers in the country, this is where revenue and earnings can really start to go into overdrive. Because these are all higher-margin products.
Let's not beat around the bush... For the past six months, investors and producers have been battling through the bloodiest bear market in the industry's nascent history.
From peak to trough, the North American Marijuana Index fell more than 50%.
Even worse, the Canadian Marijuana Index lost 64% from its 52-week high to its recent 52-week lows. And we're still hovering around that level. But is Cannabis 2.0 the salvation pot stock investors have been praying for?
Is there finally a turnaround in store?
When Dried Flower Dries Up
Well, if we were to shake our Magic 8-Ball, we might get the answer "Signs point to yes!"
That's because between now and 2024, Canada's cannabis market is projected to increase at a compound annual growth rate of 22.5%. That will make it worth more than $4 billion.
But here's where the impact of Cannabis 2.0 comes in. | | | The Canadian cannabis derivatives market (try saying that five times fast) is expected to be worth more than $2.02 billion per year.
The biggest piece of that is anticipated to be edibles ($1.2 billion), followed by beverages ($395.3 million).
Now, think of all those licensed producers that have been running at massive losses quarter after quarter. They've been building out inventory and ramping up production. Yet they've only been able to sell their lowest-margin product: dried flower.
Buds.
In the months ahead, this is where we'll start seeing those businesses turn around.
We already know from real-world data from the most mature legal marijuana markets - I'm talking Colorado, Washington and Oregon - that derivatives are big sells. Once they enter the market, they start to account for the majority of sales.
For example, when Colorado legalized cannabis in 2014, dried flower made up almost 70% of sales. Today, bud represents less than half of sales.
We all know - outside of the current vaping crisis - that smoking is bad for you. Consumers are more willing to partake of cannabis in an alternative form. And these alternatives will attract new people to the market.
In fact, Cannabis 2.0 legalization is projected to add 3 million new customers.
Several months ago, OrganiGram Holdings (Nasdaq: OGI) CEO Greg Engel talked to me on my CannaBiz Now! segment about the opportunities the company sees in the derivatives market. He stated that infused beer could come in at a lower price point than beer.
"Beverage and alcohol prices are higher in Canada than in the U.S.," he said. "They may be two to three times higher. If people are looking at their pocketbooks, cannabis is a much better product providing more bang for their buck in terms of spend."
I couldn't agree more. And I believe this will be the beginning of the turnaround.
But it won't be overnight.
The Potholes for Pot
The first cannabis derivatives to hit Canadian market shelves will arrive in December. Just in time to be stocking stuffers!
Though some retailers and companies are eyeing an early 2020 debut.
Out of the gate, infused beverages should make the biggest splash. Besides beer and spirits, look for infused kombucha, juices, seltzers and teas.
Of course, edibles are projected to make up the largest slice of the derivatives pie.
Now, I don't think Canada will suffer the same sort of issues that have plagued the U.S. market - namely the vaping crisis.
Companies in Canada have been building inventories for this market for quite some time. They've gone out and found reputable suppliers and partners, not just the lowest bidder.
The industry is also regulated at the federal level, so products are serialized. That means - God forbid - if there is a serious problem, those products can be identified and isolated.
Still... Cannabis 2.0's arrival isn't free of potholes...
Consumers will have limited access to the products initially. There aren't many physical cannabis retail locations in Canada, particularly in the most populous provinces.
Retail shelf space is sparse and a lot of companies are vying for consumer dollars. There will also be supply chain and wholesale kinks to work out.
So now that cannabis shares have hit their lowest levels since 2017 and Cannabis 2.0 legalization is finally here, is this the bottom we've been waiting for?
Well, I'm cautiously optimistic.
We're going to have to wait to hear commentary from marquee names like Aurora Cannabis (NYSE: ACB), Canopy Growth Corp. (NYSE: CGC) and Tilray (Nasdaq: TLRY). We'll have to see how the markets react to their upcoming earnings.
That means there could be more short-term volatility, especially until the derivatives market is up and running.
But I do believe the long-term outlook is still extremely bullish. Cannabis is a long game. It's a five- to 10-year opportunity.
We'll take our licks in the short run. But I believe we'll come out winners at the end of the marathon.
Here's to high returns,
Matthew | | | | |  | | | | | |  |  | | | | David Fessler | October 23, 2019 Natural gas has emerged as the transition fuel that will take us to renewables. Read More | | | | |  | | | | Matthew Carr | October 22, 2019 This week, we're looking at the retailers projected to post the largest revenue wins for the holiday shopping season. Read More | | | | |  | | | | Matthew Carr | October 21, 2019 Aphria's first quarter earnings set the cannabis world ablaze... at least for a moment. Read More | | | | | | | | | | |
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