The cannabis industry is evolving, but will the market turn?
North American cannabis companies prepare for another heavy waste season.
Industry Leaders Canada&# 39; s Canopy Growth and Aurora Cannabis fell in value as their financials fell short of expectations again amid continued weakness in the Canadian market. «There must be a process of cleaning up a market that has companies that are real and not real», – noted Matt Hawkins, Managing Partner of Private Equity Fund Entourage Effect Capital said in an interview with CNN Business.
The cannabis industry in North America is undergoing a period of evolution that seems to be conducive to the financial health of the industry..
Those who closely follow the state of affairs say that only companies that have a strong position in terms of cash and capital will survive. Downgrades and reduced operating flow could lead to asset divestitures or the loss of entire businesses that would be at a disadvantage.
«It happens in new asset classes, it happens in emerging markets», – points out cannabis investor Tim Seymour, founder of Seymour Asset Management and ETF manager Amplify Seymour Cannabis.
Cannabis public companies were initially rewarded for proactive expansion strategies that required combining businesses and licenses to form vertically integrated operations across the U.S. and internationally.
Seymour said capital markets no longer benefit from this strategy.
Understanding the Cannabis Industry and Its Risks to Investors
The North American Marijuana Index, which tracks the top stocks in the cannabis industry, traded around 115 on Friday, almost 60% less than six months ago..
Private companies also feel uneasy when it comes to money and valuations. Companies across the board test their performance for inefficiencies, focusing on financial fundamentals rather than spending for growth, and assessing what works and what doesn’t.
This is a period of corporate turmoil, fewer deals and fewer companies are a real test for the industry, says Evan Eneman, CEO of MGO-ELLO Alliance, a provider of business consulting and investment banking services..
«There is a lot of volatility now, but in general, from a macroeconomic point of view, everything is very positive», – said Eneman.
A wider selection of cannabis products will soon appear on the Canadian market, which industry analysts expect will attract more black market consumers. In the US, more and more states are passing laws that favor cannabis use, and hemp and hemp products are gaining some regulatory clarity, although the US Food and Drug Administration leadership on cannabinol products has the final say..
Cowen analysts raised their prospects for the U.S. cannabis industry this week, projecting potential sales of $ 20 billion by 2030, up from previous projections of $ 80 billion..
Earlier this month, contrary to market trends, the CEO of ManifestSeven (M7) sent a memo to investors informing that the company would complete its listing on Canadian exchanges in the coming weeks..
«This is the conclusion of a cycle that was inevitable in its own way, ”Sternes Karban, CEO of M7, told CNN Business. – This is truly the beginning of true industry building».
While there is hope that the ongoing evolution will lead to a turnaround in volatile public cannabis markets, some cannabis investors who attended the Kahner Global Cannabis Private Investment Summit in San Francisco on November 5 argue that the public market crisis is far from over..
«I would go in a different direction; the markets are now frozen, ”said Hawkins of Entourage Effect. – My reaction – "good luck". I really don’t know the benefits [public offering] right now».
Any sustained resurgence of public cannabis markets could lead to the attraction of institutional investors who expect some semblance of certainty in US federal regulation, he said..
The cannabis investment approach could start a departure from the Canadian public market, says Joyce Senali, chief operating officer and managing partner of Big Rock Partners, a San Francisco-based firm that invests in private cannabis companies, the media and the hospitality industry..
«Some investors will return to individuals with future exits in larger venues such as NASDAQ or NYSE and / or through acquisitions from existing public companies, especially in [consumer goods] in America», – she said. Companies that have tried to live up to incredibly high valuations and overly optimistic forecasts face a harsh reality: New cannabis markets take time to develop, and constant regulatory uncertainty only breeds investor uncertainty..
While some cannabis businesses are hoping for a market recovery, even targeting a new public listing, some investors say the industry has to reboot first..