The cannabis market's struggles in the first full year of legalization are no secret. North of the border, scandals, supply issues, and a lack of storefronts have seen pot stocks tank across the board, hindering legalization's promise of a "green rush." In the US, regulatory uncertainty and the ongoing battle for legalization at both federal and state levels have stunted the growth of some of the most promising stocks on the market.
However, that doesn't mean 2019 has been without a few success stories, and here we'll look at three pot stocks that have big cause to celebrate as we head into 2020, and could provide hope, or an example, on how to be successful in a nascent industry such as cannabis. But first, let's recap some of the highs and lows of the year in the North American cannabis industry.
The Highs
Admittedly for cannabis companies and their investors, there hasn't been an awful lot to celebrate in 2019. In the US, the big news story was the passage of the SAFE Banking Act, which made it legal for cannabis companies to access banking services. Previously, institutional banks had been apprehensive of providing their services to pot firms for fear of legal repercussions, meaning many companies had to deal strictly in cash and were unable to access many forms of financing. Access to banks should be a huge factor in driving growth in the near future. The MORE Act is a cause for future hope, as well.
In Canada, there has been markedly less reason to celebrate. The passage of legalization 2.0 in October was the most eagerly anticipated event on the cannabis calendar, opening the market for the sale of derivative products, such as vapes, edibles, and infused beverages. While that legislation came into effect on October 17, it will be mid-December before companies can actually begin selling these products, and 2020 before we start to see the benefits of what analysts expect to be an additional three million consumers brought to market.
The Lows
In the US, regulatory uncertainty and the continued fight for federal legalization have led to a 32.1% decline in the market, with the current price of the Global Cannabis Stock Index testing levels not seen in more than three years. The passage of the Farm Bill in 2018 provided a major boost for hemp farming, and the CBD market has been allowed to thrive in 2019, reaching a value in excess of $300 million USD. Should the same sweeping legislation ever be applied to cannabis, which is a possibility based on some of the 2020 candidate's proposals, there could be big gains ahead.
In Canada, there's little that hasn't been said about the disappointing launch of legal pot. While supply issues were the first real problem to face the infant industry, that situation has been almost entirely flipped on its head, with oversupply set to be a problem in 2020. Stringent Health Canada regulations regarding marketing and advertising have also had an adverse effect on pot stocks, while a lack of retail locations has meant that the black market continues to thrive, offering consumers better visibility and vastly lower prices per gram.
Then came the scandals and controversies. CannTrust Holdings (TSX:TRST) (NYSE:CTST), a former industry leader, led the way and in a twist of cosmic fortune that would only occur in the Canadian cannabis market, became the most untrustworthy brand around after it emerged that it had been growing cannabis in unlicensed rooms. The scandal went all the way to the top and led to the dismissal of CEO Peter Aceto and a 90% drop in CannTrust stock.
The ousting of Bruce Linton from Canopy Growth (TSX:WEED) (NYSE:CGC) was also a major story this year. The pot pioneer, who was at the forefront of the legalization campaign, was removed as CEO from the company he founded after Constellation Brands (NYSE:STZ), which invested $5 billion USD in the world's largest cannabis company, grew unhappy with his leadership. CGC stock is down over 60% in 2019.
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The Gainers
While the list of lows could go on and on, and already dwarves the highs, some pot stocks have managed to take advantage and make gains in 2019 for various reasons. Let's take a look at some of the year's biggest success stories and how to they did it:
Valens GroWorks (TSXV:VGW) (OTCQX:VGWCF) has seen its stock rise by a massive 160% in the last 12 months by establishing itself as the industry leader in cannabis extraction services. These services are pivotal to the development of 2.0 products, and so 2020 could be an even better year for the Kelowna company. Valens has also inked a number of really impressive supply deals, including one with Shoppers Drug Mart, which will see its products hit shelves across 1,300 stores in Canada, likely a sign of better days ahead.
Innovative Industrial Properties Inc (NYSE:IIPR) is a cannabis real estate investment firm that has found an opportunity where pot companies have struggled. The underwhelming performance of the market and an initial wave of huge capital expenditure has meant that most cannabis firms are a little cash-strapped at the minute. Innovative has been buying up cannabis real estate left, right, and center and leasing them back to firms on long-term contracts. This business model has seen IIPR stock rocket up over 70% in 2019.
Trulieve Cannabis (CSE:TRUL) (OTCQX:TCNNF) has asserted a strong market dominance in its home state of Florida and delivers some of the best revenue figures in the US industry. The $70.7 million USD in revenue that was delivered in Q3 was up 22% from the previous quarter and 150% from the same period a year prior. With its patient-focused approach and its financial discipline, TRUL stock has gained 48% in the year so far and nearly 60% since its debut in 2018.
The Takeaway
2019 may be a year to forget for many cannabis companies and pot stock investors, and while many are hopeful that 2020 will be a little brighter with the launch of the 2.0 market, many may also hold apprehensions, having learned a tough lesson this year. That doesn't mean that the cannabis market is without success, as exemplified by the three companies above. Investors merely have to learn the hallmarks of a successful pot stock, while companies could do with taking a leaf from the books of the stocks mentioned above if they are to make 2020 their year.
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