There are now more than 360 listed companies in the cannabis sector. Of these, 75-85% or about 270-300 companies are not worth investing into it. It is extremely important in stock selection process that the company has a sustainable business strategy and is sufficiently capitalised.
Now to our forecasts for the remainder of 2019:
The number of M&A transactions should increase. Market participants were surprised in 2018 when the first tobacco and beverage giants appeared on the scene. The next hype is likely to begin when, for example, Coca Cola or a large pharmaceutical company takes a stake in a cannabis company or announces a joint venture deal.
- Price pressure!
The Canadian market is saturated – many Canadian producers have built up bigger inventories. Therefore, we can imagine that prices for cannabis in the Canadian home market will tend to fall. Well capitalised companies can keep their profit margins more stable through economies of scale and the development of derivative cannabis products (e.g. CBD oil).
We are also interested in companies that have already established a foothold in new sales markets. These include countries that have already legalized medical cannabis. Especially Europe with 750 million inhabitants and Latin America with 650 million inhabitants are attractive markets for future-oriented companies.
- new markets!
After Uruguay and Canada, we expect further countries (e.g. Mexico, Israel or Luxembourg) but also further American federal states to join the legalization trend. In the USA, the states of Illinois, Delaware, New Hampshire, New York, Rhode Island and Vermont are at the top of the list of states with a positive attitude towards the possible release of cannabis for recreational purposes.
- BAND! BRAND! BRAND!
Cannabis gets more and more the status of a raw material / commodity. Similar to coffee, Starbucks consumers don’t care which coffee farmer is behind the Starbucks products. For cannabis producers it should be a big goal to build a strong nationwide branding of their branded products. This way, customer relationships can be strengthened and decent margins earned. Successful companies often focus on one region and then copy their successful concept to other American states/countries in their individual expansion strategy.
A good example of a company that occupies a lucrative niche is “The Green Organic Dutchman”. The company grows organic cannabis and sells the products at a significant 20-30% premium over conventional producers.
- BREAKING NEWS!
We expect a continuing positive news flow in the cannabis sector in the course of 2019. As already mentioned in point 1, another larger group from the pharmaceutical or consumer goods sector could appear and take a stake in a cannabis company or announce a joint venture deal.
We expect that important organizations (e.g. the World Health Organization – WHO) will adopt a more positive attitude towards cannabis at the end of 2019 or in the course of 2020, especially when it is used for medical purposes.
The American FDA had invited to a hearing on CBD products on 31 May 2019. We expect the FDA to comment on quality standards and dosage parameters for CBD products before the end of 2019. This clarity should lead to strong growth in the cannabis 3.0 (‘edibles’) sector.
As you can see, it remains exciting in the promising cannabis sector.
One thing is clear for us: we are just at the beginning of a new global cannabis mega-market!
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