Investing in Legal Cannabis industry in 2020
Cannabis equity investors suffered in 2019, the sector’s difficulties were reflected in the exchange-listed Horizons Index Marijuana Life Sciences ETF (HMMJ), which posted a year-to-date decline of around 35% as of December 31, 2019
In 2019, it is the high valuations of Canadian licensed producer shares that were of most concern. There was a significant challenge for these stocks: to meet the high expectations that their high valuations were driving their revenue growth.
Of course, with a brand new domestic recreational cannabis market, the revenues of Canadian licensed growers skyrocketed. But by the end of the second quarter of 2019, it became clear that the pace of growth for licensed producers was insufficient, and the market became overly focused on revenues and earnings growth potential.
A sector that had previously been valued on potential was now judged on its fundamentals. Through this prism, many companies lost their appeal because of negative earnings.
In Ideas Growth , a number of bankruptcies and exits from the industry are likely to occur, as equity financing has dried up for smaller players and retail sales are simply not generating revenue.
But now it is time to be optimist as major investment firms are beginning to announce a floor and make buy recommendations for the sector. These include CIBC, Bank of America Merrill Lynch and Cantor Fitzgerald.
In 2019, it is the high valuations of Canadian licensed producer shares that were of most concern. There was a significant challenge for these stocks: to meet the high expectations that their high valuations were driving their revenue growth.
Of course, with a brand new domestic recreational cannabis market, the revenues of Canadian licensed growers skyrocketed. But by the end of the second quarter of 2019, it became clear that the pace of growth for licensed producers was insufficient, and the market became overly focused on revenues and earnings growth potential.
A sector that had previously been valued on potential was now judged on its fundamentals. Through this prism, many companies lost their appeal because of negative earnings.
In Ideas Growth , a number of bankruptcies and exits from the industry are likely to occur, as equity financing has dried up for smaller players and retail sales are simply not generating revenue.
But now it is time to be optimist as major investment firms are beginning to announce a floor and make buy recommendations for the sector. These include CIBC, Bank of America Merrill Lynch and Cantor Fitzgerald.
