This plunge in stock prices has been both excessive and irrational.
Canadian cannabis stocks were pushed down across the board on news that one Ontario company (CannTrust Holdings) had been caught operating some “illegal grow rooms”. This comes in a marketplace where 85% of the cannabis is still being supplied by the cannabis black market.
Utterly trivial.
In the U.S., stocks in legal cannabis companies were pushed way down because of “the vaping crisis”. This was (is) an outbreak of illnesses and deaths from tainted black market cannabis products. It’s actually a driver to push consumers toward legal products. And it adds further political pressure to legalize-and-regulate cannabis nationally.
Utterly absurd.
There was legitimate bad news in 2019. Because of the pathetic pace of cannabis store-openings in Canada’s largest provinces, Year 1 cannabis sales in Canada were below expectations.
In the U.S., California’s cannabis industry remains a complete train-wreck. At the federal level, dithering politicians and hostile bureaucrats (the FDA) got very little done this year.
That said, seeing stocks in an emerging industry (with almost unlimited potential) plunge to two-year lows is one of the Great Disconnects in the history of markets. But despite this irrational depression in cannabis stocks, some companies have still thrived – in both the United States and Canada.
U.S.-based Curaleaf is the world’s largest cannabis company today (by revenues) and approaching profitability. It closed 2018 at CAD$6.46. As of this writing, CURA is trading at CAD$7.70. Curaleaf is up 19% on the year, but as with other leading companies, it wasn’t immune to the artificial depression in cannabis stocks.
[charts courtesy of Stockcharts.com]
CURA traded as high as CAD$15.75 this year. This means that cannabis investors could have reaped a 2019 gain as high as 144% on this leading MSO.
Trulieve dominates Florida’s robust medicinal cannabis market. The company is also demonstrating success as it moves into other U.S. states. Trulieve is currently up 46% in 2019.
With a 2019 high of CAD$21.65, TRUL didn’t offer investors as much maximum upside (+97%) as some of 2019’s other leading winners (especially compared to Canadian companies). But Trulieve is managing to close out 2019 closer to its 52-week high than other “winners” this year.
Based in the huge tourist hub of Las Vegas, Planet 13 holds the distinction of operating the world’s largest cannabis store. The company is heading toward year-end up 35% for 2019.
Planet 13 has also done relatively well in hanging onto its gains in 2019. Targeting “tier one” U.S. cannabis markets, Planet 13 is a unique specialty retailer in the U.S. cannabis industry.
Village Farms is one of Canada’s leading cannabis cultivators in terms of overall capacity. This agriculture company is a cultivation specialist, with the capacity to dramatically scale-up its greenhouse cultivation from existing infrastructure.
Village Farms ranks as 2019’s biggest winner among leading cannabis companies. Currently up 90%, investors who capitalized on VFF’s 52-week high could have reaped 2019 gains of as much as 446%.
Canada’s leading cannabis extraction specialist, this profitable cannabis company also powered higher in 2019 before getting dragged down by the larger take-down in the cannabis industry. Even so, the company is set to close out the year delivering more than a “double” in 2019 (+113% as of this writing).
While MediPharm continues to scale-up its extraction capacity, LABS is now branching out both vertically and horizontally. U.S.-based investors (in particular) will note MediPharm’s pending application for a NASDAQ listing.
Valens is Canada’s other dominant extraction specialist. Also profitable, Valens delivered a strong year for investors in 2019. It is heading for 2020 trading at nearly double where it began the year.
Like MediPharm, Valens continues to aggressively scale-up capacity. It is also pursuing additional synergies through vertical integration. Investors selling near the high could have more than tripled their money with VGW in 2019.
These 2019 cannabis winners are not a collection of obscure micro-caps. These are all leading cannabis companies within their various niches.
The cannabis-hating mainstream media has continually misled investors.
Investors have been led to believe that few (if any) companies have been able to escape the irrational crash in cannabis stocks in 2019. Wrong.
Investors have been led to believe that few (if any) of these companies (in this emerging industry) have already transitioned to profitability. Wrong again.
Despite the take-down in cannabis stocks in 2019, investors can find several prominent companies set to close out the year “in the green”.
Despite the ongoing political and regulatory failures that plague both U.S.-based and Canadian-based cannabis companies, a significant number of companies have made the transition to profitability. Many more are close.
Yet based upon the relentless (and inaccurate) reporting on the cannabis sector by the mainstream media, a horde of short-sellers descended upon cannabis stocks in 2019. Even with valuations at these rock-bottom levels, short positions in cannabis stocks remain extremely bloated.
What little positive hype that could be found in the media in 2019 was pointing investors to U.S.-based cannabis companies as being the most prospective opportunities. In fact, it was Canadian-based companies that clearly supplied most of 2019’s biggest gains.
Look again at the 1-year performances for some of 2019’s cannabis “winners”. This occurred during what will likely rank (in hindsight) as the worst year ever for this emerging industry.
Now consider the potential returns for the best-performing cannabis stocks in an “up” market. The Seed Investor will be expanding on this thought. As we provide our year-end wrap up and look ahead to 2020, we'll offer investors some suggestions on where to look for cannabis winners next year.
As cannabis investors prepare for their holiday dinner, this should make the Christmas turkey a little easier to digest.
DISCLOSURE: The writer holds shares in Curaleaf Holdings, MediPharm Labs, and Valens GroWorks.