Cannabis Outlook 2019: Companies Fighting for Value Appreciation

Cannabis is on pace to experience another volatile year full of exciting developments and critical evaluations on its worth.

The focus on the cannabis market could begin to transition to the more desirable US market; as edibles kick in for Canada, sales from this market are enticing Canadian companies in the local markets.

As Canadian cannabis companies continue facing questions on the real value of the enterprise at play, or even just how much revenue will be coming in the next year, leaders in the space continue to tout the international play for investors.

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And, while international aspirations gain steam through new markets and acquisitions, investors are looking for some results as to the debate over whether or not cannabis is a long-term play intensifies.

For investors looking to catch up on 2018 before reading up on what companies in the space are looking forward can read our cannabis 2018 trends overview.

Projections from research firm Deloitte place 2019 as a year worth C$ 7 billion in sales for cannabis thanks to a projected 35 percent boost from recreational users.

“Legal recreational cannabis sales could generate up to [C]$ 4.34 billion in sales, accounting for more than half of total cannabis sales,” Deloitte expects.

Cannabis Outlook 2019: Promise of edibles and infused beverages in Canada

After a rocky start to the legalization of adult-use cannabis, producers expect to see more establishment in the market, with more retail options appearing for consumers in the legal market.

One of the biggest elements for the Canadian cannabis industry coming in the next year is the legislation on edibles and other infused products of cannabis.

Infused items have gained notoriety as major cannabis companies formed relationships with beverage leaders and multiple smaller marijuana ventures launched efforts to find the right solution on a cannabis drink.

According to the Canadian government, the Cannabis Act will make it so edibles and concentrates will become legal “approximately one year after” October 17—the date of the act.

In November, Marijuana Business Daily reported draft regulations on the usage of edibles and concentrates was expected sometime before the end of 2018.

These drafts would allow followers of the industry a closer look at what the approach the government intends to follow for this anticipated sector of the market.

“The expected new legislation will begin to change the broader perception of how cannabis can have a positive impact on all of our lives,” Peter Aceto, CEO of Canadian licensed producer (LP) CannTrust Holdings (TSX:TRST), said.

Shawn Moniz, CEO Cannvas MedTech (CSE:MTEC), explained there will be an even greater focus on “cannabis education” in 2019 due to these new products.

With this need, results from new research will also be crucial to follow as new discoveries are made on cannabis and its effects.

Cannabis Outlook 2019: US becomes the focus of the overall cannabis sector

Operators of the US cannabis market have enjoyed the option to deploy capital and assets into legal states as they see fit.

The race for dominance across state lines will surely continue in 2019, but the question companies ask is whether or not there will be sweeping legislative support.

Momentum for the STATES act, a bipartisan policy in the Senate which seeks to open the doors at a legal cannabis economy at the state level, continues to grow.

Kevin Murphy, CEO of Acreage Holdings (CSE:ACRG), said he definitely expects the policy to become law in 2019.

With this bill, the executive even expects for cannabis companies with enough size to elect for public listings in the NASDAQ or New York Stock Exchange, rather than the Canadian Securities Exchange (CSE).

Hemp and CBD derived from cannabis are also set to receive a legislative boost as the Hemp Farming Act of 2018 goes through the last stages before being approved.

Similarly to the proposed effect of the STATES act, the passing of this hemp legislation could green-light the listings or transferring for companies with enough value into bigger exchanges.

Taking one step further George Scorsis, CEO of Liberty Health Sciences (CSE:LHS), said he expects 2020 presidential bids to be launched with cannabis as a main platform issue.

Despite the predictions for the US market and its prevalence as the most valuable market available, there remains a challenge as to how valuable US-centric operations are with the federal illegality of the drug.

“Investors need to make sure they are very disciplined in their approach in investing and understand they are well ahead of any of the regulations changing in favor of legalization,” Scorsis said, adding there will still be a lot of volatility moving forward with US pot stocks.

Cannabis Outlook 2019: On the hunt for bigger deals with established industries

With the emergence and confirmed interest from large market cap players in established industries such as alcohol, tobacco and pharmaceuticals Brayden Sutton, CEO 1933 Industries (CSE:TGIF) expects more entries next year.

“Expect many catalysts and surprises in 2019 and 2020 as those three industries desperately try to hold market share and get relevant in the cannabis world,” he said.

With more and more cannabis companies seeking listings in premier US exchanges and the continued entrance of established industries with cannabis deals, it is expected for more institutions to begin trusting specific cannabis plays.

As Cronos Group (NASDAQ:CRON,TSX:CRON), joins fellow Canadian LPs Canopy and HEXO (TSX:HEXO) holding deals with major multi-billion dollar valuation companies in established markets, the profile of these companies in the eyes of institutions keeps growing.

Cannabis Outlook 2019: The entrance of institutional money

As the cannabis markets continue to gain legitimacy and value in the eyes of retail investors, some experts believe the time is coming for when institutional investing will be a driving force in the sector.

In September, Bruce Linton, co-CEO of Canopy Growth (NYSE:CGC,TSX:WEED) indicated two years ago pot investing was all retail but, according to him, a quarter or more is institutional.

Linton doubled down with his commentary by telling BNN Bloomberg when retail investors jump out of a stock like Canopy’s, institutional money steps in for those moments.

“We’re going to see a shift in the 2019 theme: those which are institutional investable and those whose aunts and uncles buy and sell in the morning and afternoon.”

Codie Sanchez, an investor and partner with CS Ventures, told INN she doesn’t see why institutional money hasn’t entered cannabis in a larger way.

“I can’t imagine why institutions don’t start trying to invest in this space… especially as we see it being difficult for institutions to get the kind of returns that you can get in the cannabis space,” she said.

In defence of the US investment despite the federal irregularities, Scorsis said he expects the capital markets to get more comfortable and feel safe about investing in the US options of the market.

According to Chris Naprawa, president of Khiron Life Sciences (TSXV:KHRN), capital will become more concentrated over the next year “into fewer and fewer names as people really understand the global nature of this business.”

Cannabis Outlook 2019: Investor takeaway

Cannabis companies are benefiting from investors learning about the space and raising the bar for the companies to clear.

“This market is expanding every single day and the best teams with the best backers with the most access to capital, those will be the teams that will win and they always do in every market every time,” Naprawa said.

George Kveton, CEO Invictus (TSXV:GENE), added investors need to look at all aspects of a company including production profile, financial health and management strength.

While the hype can still sweep up a lot of the investors in cannabis, stricter guidelines are being put in place and ‘where to invest in cannabis’ is becoming a more difficult conversation.

“Be wary of those solely focused on large grow operations as margins will tighten as they do in most commodity-based industries,” Keith Dolo, president and CEO of Sproutly Canada (CSE:SPR) said.

Companies in the space will face more roadblocks from investors and the due diligence needed in the space will only continue to grow.

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: Cannvas MedTech,1933 Industries, Khiron Life Sciences and Invictus are clients of the Investing News Network. This article is not paid-for content.

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