Cannabis has come a long way in the United States since California launched its first-in-the-nation medical program 19 years ago. Today, 23 states and the District of Columbia have legalized cannabis to some degree, and public perception of the plant is clearly shifting. Medical cannabis is being used in the treatment of a variety of illnesses including several types of seizures.
The North American Cannabis Index has lost as much as two-thirds of its value in the last three quarters. While disillusionment is currently predominant, smart cannabis investors are already wondering when the next wave will start.
There are a lot of things that have made stocks unstable for cannabis investors. The primary reason, however, is that demand has not been able to keep up with the exploding supply.
One of the reasons for this was that regulatory hurdles did not fall as quickly as hoped. In Ontario, Canada, distribution networks were slow to expand and in California, taxes were raised so sharply that illegal competition is on the rise again.
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At the same time, little is being done at the federal level to unravel the complex legal situation that is currently being defined by the individual states.
In addition, there are some problems, such as the cultivation of unauthorized land, exaggerated promises of cure and quality problems.
In the meantime, many companies and cannabis investors are seeking their salvation in mergers and drastic cost containment. It has not helped much so far.
Even flagships such as Canopy Growth and Aurora Cannabis have sold massively after the hoped-for “break-even point” has been pushed far into the distance. This, in turn, is putting their major investors in distress.
Many speculative second-line stocks did even worse. With the massive fall in prices, however, one can claim without hesitation that the general risk/reward ratio for cannabis stocks has improved.
For cannabis investors, the formula for success is to combine the economies of scale of NextEra with the technical capabilities of SolarEdge and a strong brand. The latter in particular is easier to build for cannabis than for solar modules.
When it comes to branding, cannabis is more like coffee. The fact that some of the world’s best-known brands have emerged in the coffee environment over the past decades speaks volumes. Starbucks, Senseo and Nespresso come to mind quickly.
Despite this success, the losers are easier to find than the big winners. Solarfabrik, Solarworld, and Ersol have long been a thing of the past, and even the Chinese corporations that have taken over the business are not predominantly profitable.
The parallels and clear differences can also be seen. Thus all solar cannabis plants produce universal electricity, while there are clear differences with hemp plantations.
Some address the legal leisure market with different varieties, plant parts, and extracts, while others strive towards cosmetics and pharmaceuticals. They all have certain opportunities to differentiate themselves from the competition.
Further opportunities will arise in the medical field as soon as the effectiveness and safety of the derivatives can fully convince the international regulators. So there is much to suggest that in 10 years’ time we will see a cannabis giant that not only has ambitious plans but also generates tangible profits.
A suitable strategy for cannabis investors could, therefore, be to slowly build up small positions in promising candidates. This ensures participation as soon as the next wave of cannabis picks up speed.
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(Featured image by Kym MacKinnon via Unsplash)
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