The legal cannabis industry has undergone an epic shakeout this year. Most cannabis stocks have burnt significant investor wealth and according to CEO of Acreage Holdings (OTCMKTS: ACRGF) Kevin Murphy, this is 2008 for the marijuana sector. Investors put a lot of money in Canada’s cannabis market and a year after the legalization of recreational cannabis the excitement has evaporated.
It appears like the euphoria of investing in the industry has cooled off with investors shying away from cannabis investments. According to stock price data, the value of shares of Canada’s top cannabis companies plunged by an average of 56% this year. However, despite this torrid times the industry has experienced pundits are predicting that the industry might bounce back in 2020.
Cannabis industry grappling with few retail stores
The marijuana industry has faced challenges in the past year and some of the problems are still there. For instance, the main challenge that the industry has faced since the legalization of recreational cannabis has been the lack of sufficient retail stores. Quebec and Ontario have which are some of the most populous provinces that have been sluggish in licensing retail stores despite demand being high.
In Ontario, there are only 24 legal cannabis stores serving close to 17.5 million people. As a result of fewer legal retail stores, there is a proliferation of black market activity where cannabis can be bought on the cheap. The lack of adequate retail stores has led to companies such as Aurora Cannabis (NYSE: ACB) to halt production expansion until there is enough demand.
Equally the other challenge that has impeded sales is the elaborate regulatory structure. The cannabis regulations in Canada are designed to decriminalize cannabis use and not encourage it. The regulations mimic the approach Canada has towards tobacco and it largely blocks advertising and marketing.
Cannabis derivatives to help boost industry
There are various developments in Canada that are indications of bright days ahead. The industry could rebound next year as the country prepares to usher in the cannabis derivatives market as of December 17. There is a lot of excitement surrounding Cannabis 2.0 legalization which includes infused beverages, edibles, and vapes. Companies such as Canopy Growth Corp (NYSE: CGC) are have positioned themselves with infused beverages through the partnership with Constellation Brands (NYSE: STZ).
The derivatives segment is considered the future of the industry and could drive margins compared to the dried cannabis flower. This is because the derivatives will appeal to younger generation consumers. Most companies are committing resources to the production of consumables as they look to capitalize on prospects in the industry.
More retail stores expected in 2020
Canada is addressing the issue of retail stores which has been the biggest headwind in the rollout of recreational cannabis. Ontario, for instance, could triple the number of retail stores in the coming months which will improve the retail situation significantly. Also, Quebec and Alberta will increase the number of retail outlets. Quebec has indicated that as from March next year it will start issuing 20 retail store licenses per month. This will well improve the retail environment in the country and help companies make money.