First off, happy Thanksgiving! We all have so much to be thankful for and we truly appreciate that you are here for your cannabis news and analysis.
2019 has been a tough year for the cannabis sector. However – we are still extremely optimistic about the sector.
Here’s a quick Thanksgiving update and what we should expect in December and into 2020.
Cannabis stocks hit some speed bumps in 2019. Expectations have been running red hot for the last three years and the industry wasn’t able to live up to those expectations in 2019.
4 Cannabis Sector Speed Bumps
#1 – The Canadian legal cannabis market is off to a slow start as the industry struggles with over-regulation and high taxes that make it difficult to compete with the illegal market.
#2 – California’s legal cannabis market is off to slow start too, also burdened by over-regulation and high taxes that make it difficult to compete with the illegal market.
#3 – With industry sales slower than expected, the cannabis sector reported disappointing revenue and earnings growth.
#4 – The vaping crisis also took a big bite out of cannabis stocks.
When you add it all together, cannabis stocks have had a tough six-month stretch.
However, we are still very optimistic and believe the worst of the selloff is well over. A lot of bad news has been priced into the sector and we see a number of powerful catalysts as we head into 2020.
Optimistic For the Cannabis Sector
More US States Are Legalizing Marijuana
The US is the largest cannabis market in the world. Now, a plethora of US states plan to legalize medical and recreational cannabis in 2020. That list includes New York and New Jersey which are both looking to legalize recreational cannabis, an event that would transform the East Coast into one of the biggest cannabis markets in the world.
Canadian Cannabis Market Will Improve
The Canadian market should have a good year in 2020. Regulators have been working hard at fixing two of the industry’s biggest problems. Cannabis extracts such as vapes, edibles and beverages hit the shelves in December. This alone is expected to double the size of the Canadian cannabis market.
Ontario, the largest province in Canada is also making moves to let hundreds of new cannabis stores open. Right now there are only 24 cannabis dispensaries in the entire province and it is creating a huge supply shortage. The new store openings will increase cannabis sales dramatically.
Bad News Is Priced into the Cannabis Sector
A lot of bad news is priced into the cannabis sector. That has led to a painful correction. But moving forward, any good news should give the entire sector a jolt.
Cannabis Stocks Are Oversold
After this correction, the cannabis sector is the most oversold it has ever been. In the past, when the sector has been this oversold it has led to enormous rallies.
How Should We Proceed?
The cannabis industry is still in its infancy. Cannabis has been legal in California for two years and Canada for one year. Expectations are running red hot for this new industry, but just like every new industry there will be speed bumps and it takes time for these companies to develop and mature.
In the long run, we expect the global, legal cannabis industry to expand dramatically in the next few years and we see many promising young cannabis stocks in a position to capitalize.
About the Author
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.