The cannabis sector has evolved substantially since I began following it 7 years ago, but the COVID-19 crisis has made it as challenging as ever to navigate. I created the video below to share my perspective on what investors should expect ahead. Most importantly, the cannabis industry capital crunch that we first discussed in September, has intensified. We could see private and public companies fail, and even the strongest companies will likely see slower growth as they curtail physical expansion. Some of the positive drivers, including the roll out of stores in Ontario and legalization by the legislative process in several American states, have been pushed out. On the other hand, the crisis has made legalization more appealing due to its positive impact on tax revenue and employment.
I discuss my views on each of the following sub-sectors:
- 5 Large Canadian LPs: Large cash burns, substantial debt and complexity
- Other Canadian LPs: Some better potential investments and simpler business models
- Canadian Extraction LPs: Poised to benefit from the expansion of types of products available to include edibles, vape pens, beverages and other derivatives
- Canadian Retailers: Good long-term prospects, but challenges near-term in this overlooked sub-sector
- 4 Large American MSOs: Best access to capital than smaller rivals, better cash burns than larger Canadian counterparts
- Other MSOs: Substantial risk for companies that aren’t adequately capitalized, but there are some that have strong balance sheets and even positive cash flow from operations
- Ancillary Companies: Good way to bet on industry without picking specific operators
- CBD Companies: Remains quite challenging, but FDA regulatory clarity could be a strong driver
In addition to discussing my outlook, I explained how readers of New Cannabis Ventures can leverage the investments we have made in our content and proprietary resources. For those looking for more insight and analysis, our premium service 420 Investor has been the go-to place for investors since 2013, and I discussed several of the features the service offers.