Cannabis Market Update: Q3 2020 in Review

Click here to read the latest cannabis quarterly update.

Cannabis investments have proven to be a volatile ride in 2020, but encouraging signs are pointing toward a calmer outlook in the future.

This year’s Q3 period showed some evolution as the industry continued to stabilize.

After a chaotic Q2, during which responses to the COVID-19 pandemic magnified the downturn among Canadian cannabis businesses, the US market shone once again in the third quarter as public cannabis operators presented more impressive results.

Q3 also showed that the wedge between profitable operations and those lagging behind is growing as the cannabis industry reels from the ups and downs of overall industry uncertainty, and from the larger impact of the novel coronavirus.

Here the Investing News Network (INN) takes a closer look at some of the most significant cannabis investment trends in the third quarter.

Cannabis market update: US industry gains traction

The US cannabis market has been the more attractive part of the sector to place bets in for quite some time now, according to stock experts evaluating the space.

Dan Ahrens, managing director and chief operating officer at AdvisorShares, is one of the biggest proponents of looking more closely and more seriously at players in the US market.

“The US is a much bigger market, a much better market, and now this year the US market is performing a lot better than most of the Canadian market,” Ahrens, who is the active manager for the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS), previously told INN.

Watch Ahrens and Nawan Butt of Purpose Investments discuss the US cannabis market.

Depending on the outcome of the upcoming US presidential election, cannabis stocks may be poised for solid gains, as reform momentum could see an uptick in the case of a Democratic win in November.

Encouragingly, Joe Biden’s running mate Kamala Harrais has said a Biden administration would decriminalize marijuana and expunge records for those with convictions against them.

Whether or not Democrats take control of the White House — or the Senate for that matter — American cannabis policy is expected to see an uptick in momentum in the near future given that five states are adding cannabis reform to their ballots this year.

“As a result, our view is that regardless of who wins the Presidency, the State level changes bring significant upside to US cannabis names,” the managers of the Ninepoint Alternative Health Fund wrote in a monthly commentary note to investors.

Cannabis market update: Aurora offers snapshot of volatile Canadian market

Aurora Cannabis (NYSE:ACB,TSX:ACB) investors faced a rocky quarter, experiencing issues that are being seen throughout the evolving industry. The company posted its heaviest fiscal year loss, got a new leading executive and had a top analyst in the sector predict it is three years away from profit.

In terms of its new leadership, the company appointed Miguel Martin as CEO based on his previous experience with consumer product categories. Martin immediately went to work on damage control related to Aurora’s C$3.3 billion loss for its 2020 fiscal year.

The new cannabis executive told the market his strategy to shift things around at the company relies on growing a lot of cannabis at a cheap price only to then sell it under a premium brand price tag.

“It may not happen as quickly as everyone likes, but the category is growing, the margins are really healthy, and if we can do this very quickly as evidenced in this quarter and the quarter after, then we’ll see,” Martin told BNN Bloomberg in September.

Early reviews from analysts indicate there is skepticism surrounding Martin’s bet. According to Yahoo Finance Canada, BMO Capital Markets analysts Tamy Chen and Peter Sklar wrote a note saying they don’t expect to see profits from the company anytime soon unless it undergoes “meaningful cuts” again.

“Because new management is trying to shift from value to more premium, we do not expect growth on a volume basis over the next three years until the company settles into a steady state market share, which we define as low-to-mid-teens percentage,” the BMO analysts wrote. “If Aurora is successful in this shift, there should be revenue-dollar growth.”

Over a year-to-date period, shares of Aurora in Toronto have significantly dropped in value, falling over 80 percent as of close of day on October 14. Aurora shares ended that day with a price tag of C$5.96, close to matching the company’s 52 week low of C$5.74.

In the wake of new executive leadership entries across the Canadian cannabis industry, Monica Chadha, EY Canada’s national cannabis leader, told INN this is a needed step for the space.

“With the … changing of the guard and getting new executive leadership teams in, it’s certainly inviting individuals into the organization who do have that global experience and who can run a public multinational organization as international expansion occurs,” Chadha said.

Watch the full interview with Chadha above. 

Cannabis market update: Investor takeaway

In a time of evolution for cannabis operations in Canada, one expert pointed to the grueling effort some companies are making to reevaluate their operations.

Ashley Chiu, cannabis strategy advisor with EY Canada, told INN that cannabis companies are facing critical changes to their evaluations and spending, but these changes will help in the long run.

“You’re starting to see a lot of companies really reassess their capacity needs, looking at their international operations, trying to understand which markets are developed far enough for them to really make a meaningful presence,” Chiu said.

This reassessment goes beyond international ventures as well, with cannabis companies evaluating their business intentions and areas of growth to satisfy investor demand.

INNdepth

Want more details? Check out these articles for more INNdepth coverage:

• Cannabis Investment: Canadian Cannabis Stocks
• Invest in Cannabis: TSX Cannabis Stocks
• Cannabis Companies: Stocks on the TSXV
• 10 Small-cap Cannabis Stocks
• 10 Big-cap Canadian Cannabis Stocks
• CSE Marijuana Stocks
• Cannabis Stocks on the CSE25 Index
• Are Canadian Marijuana Stocks a Good Investment?

Want an overview of investing in cannabis stocks? Check out Investing in the Cannabis Industry.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.