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The Dramatic Rise and Fall of Cannabis Company Stocks

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Cannabis Company Stocks

The Dramatic Rise and Fall of Cannabis Company Stocks

The unprecedented expansion of cannabis across North America took the investment world by storm, as investors raced to cash in on the “green rush”.

Yet, even as changing regulations unlock new opportunities, it seems as though the cannabis stock bubble has already burst — at least temporarily.

Today’s visualization dives into the roller coaster of cannabis company stock valuations over the past few years, and which companies remain standing in this hazy market.

A Wild Ride for Cannabis Stocks

The North American Marijuana Index tracks the equally-weighted stocks of leading companies operating in the legal cannabis industry in U.S. and Canada. Companies listed on the index must have at least 50% of their business strategy focused on the legal industry, including ancillary operations that support companies and consumers.

At the tail-end of 2017, the promise of upcoming legalization in two immense markets—California state and Canada—had investors all fired up. The index’s low (105.31 on June 27th, 2017) shot up almost three times to 358.93 by January 8th, 2018.

Things took a sharp turn in the second quarter of 2019, as the expectations for cannabis company stocks encountered a harsh reality post-legalization.

IndexNorth America🇺🇸 U.S.🇨🇦 Canada
52-week High319.73137.07727.25
52-week Low110.1751.40195.73

Note: 52-week period data captures Dec 9th 2018-Dec 9th 2019.

What are the reasons behind such a nosedive? Could the cannabis industry still make a comeback in 2020? We look at some opposing perspectives to answer these questions.

So Much For the Green Rush

The cannabis industry is experiencing significant challenges. In the U.S., legal cannabis faces high taxes—come the new year, consumers in California will see an 80% mark-up on their cannabis at checkout, up from 60%.

North of the border, federal legalization led to immense consumer demand for Canadian cannabis—but supply can’t keep up. To make matters worse, retail stores are slow to roll out, which means Canada is feeling the crunch.

Steep prices, and difficulty purchasing products post-legalization, allow the black market to thrive. It’s clear many cannabis companies have taken a big hit as a result.

According to the Marijuana Index, here are the 10 biggest companies in the space now:

CompanySymbolMarket Cap (US$)Country
Canopy Growth Corp.NYSE: CGC$5.6B🇨🇦 Canada
Curaleaf HoldingsCNSX: CURA$3.67B🇺🇸 United States
GW Pharmaceuticals PLCNASDAQ: GWPH$2.98B🇬🇧 United Kingdom
Aurora Cannabis Inc.TSE: ACB$2.85B🇨🇦 Canada
Green Thumb Industries Inc.CNSX: GTII$2.42B🇺🇸 United States
Cronos Group inc.TSE: CRON$1.83B🇨🇦 Canada
Trulieve Cannabis CorpCNSX: TRUL$1.91B🇺🇸 United States
Tilray Inc. NASDAQ: TLRY$1.46B🇨🇦 Canada
Aphria Inc.TSE: APHA$0.96B🇨🇦 Canada
Harvest Health & Recreation Inc.CNSX: HARV$0.94B🇺🇸 United States

Note: Companies listed on a Canadian index have had their market cap converted from CAD$ to US$. Top 10 companies are based on those listed on the North American Marijuana Index. All values as of Dec 9th, 2019.

Only one company outside of North America—and even the cannabis sector—lands on this list. The UK-based Big Pharma company GW Pharmaceuticals is steadily growing its industry presence, as it currently holds 41 cannabis patents in the U.S. and Canada combined.

Still, even these big players have seen their valuations drop since the industry was at its peak. Unless the aforementioned issues are ironed out, investors may continue to pull their dollars from the cannabis industry.

A psychological shift has taken place from everyone wanting to own (cannabis) to everyone involved now feeling burned. I think many investors are now over it.

Chris Kerlow, portfolio manager at Richardson GMP

On the flip side, some investors aren’t calling it quits quite yet.

Long-Term Prospects Are High

While cannabis seems plagued with issues, some argue that these are simply short-term growing pains and will be solved as the industry matures.

Particularly in the U.S., experts predict that cannabis sales could reach immense heights in the next decade:

  1. $30 billion by 2025 (New Frontier Data)
  2. $50 billion by 2029 (Jefferies Group LLC)
  3. $75 billion by 2030 (Cowen Inc.)
  4. $100 billion by 2029 (Stifel Financial Corp)

Compared to a benchmark of $13.6 billion today, these numbers may seem ambitious—but they’re backed by major industry trends. 2020 could well be the year the market stabilizes, as consumers explore an array of retail options and vote with their wallets.

What’s more, key players in consumer industries—from alcohol and tobacco to beauty and fitness—are making big bets in cannabis and CBD-infused products. A higher number of partnerships could spark the next uptick for the industry’s potential.

The marijuana business is not for the faint of heart. But this is a big long-term game.

——Mark Zekulin, CEO of Canopy Growth Corp.

An Eye on What’s to Come

It’s clear there are differing viewpoints on the future of cannabis companies and their respective investors. As this snapshot of cannabis stocks unfolds and transforms in 2020 and beyond, could companies potentially buck the current trend and bounce back? Or will stocks continue to go up in smoke?

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Cannabis

Consumer Archetypes Shaping the European CBD Industry

This infographic visualizes the non-consumer and consumer archetypes that could be position Europe as the leader in global cannabis consumption.

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Consumer Archetypes Shaping the European CBD Industry

View the high-resolution of the infographic by clicking here.

With a colossal base of 500 million potential cannabis consumers, and laws that are loosening at a steady pace, Europe could soon emerge as the global cannabis leader.

Cannabidiol, better known as CBD, has become one of the most popular forms of cannabis in the European market, but little is known about the consumers who are reaching for it.

New Frontier Data identified a spectrum of archetypes in an effort to better understand their consumption patterns.

What Makes Europe Different?

Although Europe’s cannabis market is still in early stages, the proximity of countries could be instrumental in how quickly it grows. Widespread legalisation could be accelerated due to neighbouring countries lowering the barriers for others—also known as The Domino Effect.

A total of 22 countries have now legalised some form of medical cannabis, while other countries have decriminalised recreational cannabis or have pledged to fully legalise it in the coming years.

There is a 60% to 70% chance that cannabis will be legal across Europe within the next three years, but more research is key to unlocking growth in this market—and that includes gaining a full understanding of what consumers want.

CBD Consumer Archetypes

New Frontier Data identified five CBD consumer archetypes and four non-consumer archetypes, based on their attitudes, beliefs, and experiences. The CBD consumer archetypes are as follows:

  • The Exuberant & Intense (11%): As advocates of the CBD movement, this group is devoted to trying different products and spends more than any other archetype in the process.
  • The Integrative & Consistent (29%): CBD has become an essential component in achieving a healthy lifestyle for this group, resulting in them consuming it at least once a week and putting them in second place for highest overall spend.
  • The Sceptical & Limited (20%): CBD products are used in moderate frequency, but have not been incorporated into this group’s lifestyle as they are generally wary of health claims. However, more information may soothe the concerns of this group over time.
  • The Receptive & Reserved (23%): Consuming a narrow range of products in moderate frequency, this group are more comfortable trying products based on recommendations from friends and family. Over time, as more people in their inner circle try different products, they will also gain confidence to follow.
  • The Ambivalent & Experimental (17%): This group will not consider purchasing CBD products themselves, but will consume products when they are shared by friends and family. While their beliefs are more conservative, new products could tempt them to make CBD part of their routine.

Interestingly, up to 98% of surveyed consumers claim that CBD has positively affected their quality of life in some way. In terms of product preferences, tinctures/oils are a consumer favourite, with a large portion of people using CBD to unwind.

Non-consumer Archetypes

Less than half of all non-consumers have heard of CBD. While some of them are not open to changing behaviors, others could soon convert to a consumer archetype, provided information and legalisation becomes more commonplace.

  • Unaware & Uninterested (43%): Having never come across CBD products online or in store, this group is broadly uninterested in learning more, but may be open to experimenting as the market becomes more regulated.
  • Knowledgeable & Primed (28%): This group expresses a strong belief in the benefits of CBD and their curiosity to learn more makes them the most likely group to become consumers in the next six months.
  • Informed & Indifferent (19%): A wide exposure to CBD products does not translate to intent to purchase, potentially due to this group’s lack of awareness regarding CBD’s beneficial properties.
  • Cautious & Curious (10%): Despite a strong curiosity towards CBD products, they remain apprehensive about the safety and legality of them.

Overall, 34% of non-consumers are curious about trying CBD products—which could yield significant growth for the cannabis industry in the coming years.

A New Successor to the Throne

The recent COVID-19 outbreak has also sparked major discussion around the use of cannabis. Some parts of the world have declared it as “essential”, as consumers use products to alleviate pandemic-fuelled anxiety, which has resulted in a huge sales boost for the industry.

This will likely translate to Europe, where almost half of CBD consumers claim its therapeutic benefits are their primary reason for use.

The reality is that the potential for European cannabis growth is significant, and to achieve this, both consumer and non-consumer motivations should be considered.

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Visualizing the Huge Potential of Minor Cannabinoids

While the broader cannabis market is estimated to reach $45B by 2024, we’ve only scratched the surface in harnessing the potential of minor cannabinoids.

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The Huge Potential of Minor Cannabinoids

Hemp and marijuana are increasingly recognized for their exciting investment potential.

Due to their growing list of health benefits, the dominant conversation tends to center around the most abundant cannabinoids—cannabidiol (CBD) and tetrahydrocannabinol (THC). As a result, the cannabinoid market is estimated to reach almost $45 billion by 2024.

But CBD and THC are just two cannabinoids out of over a hundred that have been discovered to date. Today’s graphic from Trait Biosciences explores the hidden potential of the lesser-known minor cannabinoids, and illustrates how they fare in comparison to their major counterparts.

Cannabinoids 101

Cannabinoids are chemical compounds found in both hemp and marijuana that mimic compounds found in the human endocannabinoid system. This system is made up of a network of receptors that are involved in physiological processes like mood and memory.

When cannabis is consumed, cannabinoids interact with these receptors and produce different effects depending on the receptors they bind to. Although over a hundred cannabinoids have been found, they are not all created equally. They are typically divided into two categories:

  • Major cannabinoids: More plentiful
  • Minor cannabinoids: Less plentiful

Regardless of whether a cannabinoid is categorized as major or minor, every cannabinoid starts out as a form of CBG.

CBG-A: The Mother of All Cannabinoids

Cannabigerolic acid, or as it is more commonly known, CBG-A, is the acid precursor to other cannabinoid acids such as THC-A, and CBD-A. When the acids are exposed to heat, or prolonged UV light, they convert to neutral cannabinoids such as CBD and THC.

While CBG is regarded as a minor cannabinoid, it boasts a wide range of benefits that are urging researchers and scientists to take notice:

  • Fights inflammation
  • Soothes pain
  • Reduces nausea
  • Slows the spread of cancer cells
  • Helps treat glaucoma

CBG could be hugely beneficial in treating a wide variety of diseases, but it’s just one of many minor cannabinoids that could potentially blow CBD and THC out of the water.

The Potential of Minor Cannabinoids

To date, there has been limited research into the power of minor cannabinoids. However, the results from preliminary research look incredibly promising.

CannabinoidTypeExamples of potential medical application
THC
Tetrahydrocannabinol
Major, psychoactive
Parkinson’s disease, epilepsy, autoimmune diseases
CBD
Cannabidiol
Major, non-psychoactive
Epilepsy, schizophrenia
CBG-A
Cannabigerolic acid
Minor, non-psychoactive
Metabolic disorders, colon cancer
THC-A
Tetrahydrocannabinolic acid
Minor, non-psychoactive
Arthritis, neurodegenerative diseases, nausea, appetite loss
CBD-A
Cannabidiolic acid
Minor, non-psychoactive
Chemotherapy-induced nausea/vomiting (CINV), depression
CBC-A
Cannabichromene acid
Minor, non-psychoactive
Fungal diseases
CBG
Cannabigerol
Minor, non-psychoactive
Crohn’s disease, bowel disease, certain cancers
CBD-V
Cannabidivarin
Minor, non-psychoactive
Seizure prevention, Rett syndrome, Duchenne muscular dystrophy (DMD)
CBC-V
Cannabichromevarin
Minor, non-psychoactive
Osteoporosis, ALS, Muscular dystrophy
CBC
Cannabichromene
Minor, non-psychoactive
Could inhibit growth of cancer cells, osteoarthritis, neurological diseases
THC-V
Tetrahydrocannabivarin
Minor, psychoactive
Diabetes, anxiety, PTSD
Alzheimer’s disease
CBN
Cannabinol
Minor, psychoactive
Bacterial infections, ALS ,appetite stimulant

Note: Any potential medical treatment listed here stems from preclinical/animal testing only, and is simply intended to illustrate the potential application of each cannabinoid rather than a proven benefit.

Scientists also recently discovered two new cannabinoids—THC-P and CBD-P—with research showing that THC-P could potentially be 30 times more potent than THC.

The Future of Minor Cannabinoids

FDA-approved CBD drug Epidiolex has sparked a rising interest in minor cannabinoid trials.

In fact, the National Institutes of Health (NIH) has committed to providing funding to strengthen the evidence for minor cannabinoids and their pain relieving properties.

Cannabinoids could also add great value to cancer treatment-related side effects, however, more research is needed to turn potential into proof. With the availability of more robust evidence, the potential medical applications for minor cannabinoids could be much greater than we can imagine.

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