The cannabis industry is coming out of a turbulent year in the markets, with a few scrapes and bruises, several notable wins, and a handful of losses among market participants.
After a monumental 2018, which included Canada and several US states legalizing recreational cannabis, the FDA approving the first cannabis-based treatment, and sky-high company valuations, 2019 was filled with uncertainty and, in some cases, major losses.
Weak sales performances and regulatory issues sent pot stocks to record lows last year, with the top six publicly-traded cannabis companies losing a combined $25 billion in market value since last spring.
In fact, the state of the cannabis market became so dire that Acreage Holdings (OTCQX:ACRGF) CEO Kevin Murphy referred to last year as the "2008 for the cannabis industry."
Despite the laundry list of setbacks, many industry experts are confident that the cannabis industry will make a much-needed comeback in 2020.
Let's take a look at cannabis industry predictions for 2020 and which companies are expected to do well in the next 12 months.
Legalization is Going Global
In 2013, Uruguay became the first country to fully legalize recreational marijuana. Then, in 2018, Canada followed suit. Moving into 2020, the cannabis industry is expected to spread its roots globally.
Both Luxembourg and Switzerland are on the verge of legalization, which would make the European cannabis market an attractive investment opportunity. Meanwhile, New Zealand will hold an adult-use cannabis referendum in September to vote on the proposed Cannabis Legalization and Control Bill.
And then there is Mexico, which was poised to become the third country to legalize recreational marijuana until the country missed its deadline on November 1, 2019. The Supreme Court of Mexico granted lawmakers a six-month extension, meaning a decision is expected by the end of April.
If and when the legalization bill passes in Mexico, Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) will be ready to capitalize on the new market. In fact, the company has been awaiting this moment since it acquired Farmacias Magistrales S.A. in December 2018.
Another company with a stake in the Mexico market is CannaOne Technologies Inc. (CSE:CNNA) (OTCPK:CNONF), which signed a contract with Manna Health Services SA de CV last March to launch an online CBD product purchase and delivery marketplace in Mexico.
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The CBD Market Will Continue to Grow
Speaking of CBD, many experts see this market maturing greatly in 2020 and rivaling the cannabis industry in size. Since the passing of the updated US Farm Bill in December 2018, the CBD market has been gaining steam and popping up in virtually every industry.
Now, CBD-infused offerings can be found in everything from skincare and makeup to food and beverages; even CBD pet products are becoming commonplace. Big box retailers like CVS (NYSE:CVS) and Walmart (NYSE:WMT) have already lined their shelves with CBD products, and others are expected to follow suit as consumers become more educated on the benefits on the non-psychoactive compound.
The CBD market is expected to grow rapidly in the next few years to reach $22 billion by 2022.
More and more countries around the world are legalizing CBD products for either medical or recreational use, with Australia being the most recent to consider over-the-counter cannabidiol product sales.
One of the biggest barriers for the CBD industry is ensuring that the products on the market meet high-quality standards and guidelines. At present, CBD products remain unregulated, meaning there is little legal oversight in regards to the level of CBD in them.
Investors who are interested in the CBD market may want to stick to companies that conduct clinical trials and can back up their products with scientific evidence.
Companies that come to mind are Charlotte's Web Holdings (TSX:CWEB) (OTCQX:CWBHF), CV Sciences Inc. (OTCQB:CVSI), and Australia's Elixinol Global (OTCQX:ELLXF).
Company Outcomes Will Become the Focus
After lackluster revenue from the cannabis industry's major players, the focus in 2020 will likely be on cannabis companies that are turning a profit or, at the very least, displaying solid profit-centric growth.
In the third quarter of 2019, the cannabis industry's "Big Four"—Aurora Cannabis Inc., Canopy Growth (TSX:WEED) (NYSE:CGC), Cronos Group (NASDAQ:CRON), and Tilray (NASDAQ:TLRY)—all posted less-than-stellar financial results.
When these industry leaders missed the mark, it sent their stocks on a downward spiral and shone a spotlight on the fact that these companies received sky-high valuations without having the sales numbers to back them up.
Moving into 2020, investors will likely tread lightly to prevent being burned by empty promises from cannabis companies.
Canadian Cannabis 2.0
Although Cannabis 2.0 technically began in October 2019, the Health Canada 60-day notice period that pushed back cannabis derivative products launches this year.
The beginning of 2020 saw several cannabis companies roll out cannabis edibles and beverages to the awaiting Cannabis 2.0 market, which is expected to bring in C$2.7 billion annually, and many more are expected to follow suit in the coming months.
It is still too early to tell which Canadian cannabis stocks will lead the edibles market, but some believe cannabis extraction companies will be the biggest winners.
One company of particular interest is Valens GroWorks (TSXV:VLNS) (OTCQX:VLNCF), an extraction company with several high-profile clients including Canopy Growth, HEXO (TSX:HEXO) (NYSE:HEXO), Organigram Holdings (TSX:OGI) (NASDAQ:OGI), and Tilray. Valens also has white-label deals with BRNT and Shopper's Drug Mart.
MediPharm Labs (TSX:LABS) (OTCQX:MEDIF) is another extraction company that is expected to profit from the Cannabis 2.0 market. The company takes the cake as the largest extraction provider based on sales and has an extraction capacity of 300,000 kilograms per year. Like Valens, MediPharm has acquired a decent roster of clients, including the Supreme Cannabis Company (TSX:FIRE) (OTCQX:SPRWF) and Cronos Group.
Are there any cannabis industry trends you are excited about in 2020? Let us know in the comments!
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