The year 2019 has not been kind to the cannabis stocks industry. Various companies are on the brink of going out of business, primarily due to cash flow concerns. It is widely believed that the situation won’t improve in early 2020, but not all hope is lost.
A Rough Year for Cannabis Stocks
The past twelve months have been incredibly difficult for cannabis stocks. Although the year started on a high when marijuana was legitimized in Canada, things began to slip shortly after. All high-valued cannabis stocks saw their price decrease significantly as the year progressed further.
Even the retail roll-out in Canada did not create much of a buzz. Industry experts had expected a swift change in the cannabis landscape, yet were left disappointed in the end. None of the optimistic forecasts for the industry as a whole have been achieved. Some of the forecasts were even cut back, yet even those targets failed to hit more often than not.
Making things worse was the CannTrust Holdings Inc incident. The company faced repeating issues with the product, as well as its associated production. Almost CA$3m in product were sent back to the company due to the products not living up to the supply agreement. To address this problem, the company restructured its workforce, ultimately leading to 180 people losing their job.
As if that wasn’t enough, the United States made global media headlines regarding various vaping incidents. There have also been numerous health-related concerns associated with vaping throughout 2019, putting even more strain on the struggling cannabis stocks industry. All of this adds up to an unfavorable working environment, with no immediate improvement in sight.
Bleak Outlook Remains for Early 2020
There are plenty of industry-wide issues that will need to be addressed. With most cannabis stocks losing up to 65% of their value throughout 2019, raising money will remain a key challenge. Smaller companies may be forced to either shut down or merge with others to remain afloat. For the bigger companies, there may be some restructuring required as well, but most of them will survive this early onslaught.
BreakWater Venture Capital managing director Paul Rosen adds:
“Cannabis is just a little baby, it’s barely able to sit up yet or roll over. The takeaway of the last six months is that building a new industry from scratch is hard and you’re going to have some skid-outs, you’re going to have some blood spilled. It’s natural. Some of these companies don’t have a future. I won’t name names but I think we’re going to see in Canada and to some degree in the States full-blown, wipe-out failures.”
Industry experts warn how the volatility will continue to wreak havoc during the first half of 2020. The companies still standing after that point in time will face far less competition and should be able to embark on a more positive journey.
Potential Triggers for Improvement
Although not everyone wants to admit it, the future success of cannabis stocks largely hinges on the American political landscape. Several key referendums on legalizing cannabis will come up across various states, primarily on the Republican side. Depending on the outcome of those referendums, federal prohibition of cannabis may finally come to an end.
In Canada, there are high expectations for the Secure and Fair Enforcement Banking Act. As part of this regulatory measures, financial institutions will be allowed to conduct business with cannabis companies. That could, in turn, have a prominent effect on stock prices across the board.
Furthermore, there is an indication that more retail cannabis outlets will pop up in the next twelve months. Combined with the expected growth in the form of marijuana-related edibles, vapes, and beverages can help struggling companies to turn the ship around once again.