Cannabis Trends 2021: Investment Market Grapples with Future Potential

Cannabis trends 2021: US regulators go hot and cold

The political path of cannabis in the US has not been easy. But after Joe Biden's victory as US president and the Democrats' success in a pair of run-off Senate elections, many thought 2021 would bring concrete momentum.

The market took a significant run in January and February following the run-off elections. However, that “dissipated quickly” as investors' expectations turned to disappointment, an expert told INN.

“The US and Canadian markets weren't very exciting for the rest of the year,” said Nick Kuzyk, principal and owner of Meadowbank Strategic Partners.

Cannabis policy in the US remains an issue for the growth of the industry as US-based companies continue to expand and look towards the day federal regulations allow their operations to receive essential business services.

The SAFE Banking Act and the STATES Act have been pointed to as the most probable methods for cannabis reform in the US, and they would open the doors to much-needed banking reform for cannabis operators.

However, these two policies have not found a way to get cleared, with the SAFE Banking Act being the most recent victim of the disorienting political process in the US.

“There’s undeniable momentum in our industry, but my fear is that politics gets in the way of the will of the people,” Joe Bayern, CEO of Curaleaf Holdings (CSE:CURA,OTCQX:CURLF), told MJBiz Magazine.

From an investment perspective, the delay on significant changes for US cannabis policy has added frustration for some experts when taking into account the pressure for US-based companies to secure American listings.

“Without creating a pathway for the NYSE or the NASDAQ to list legal plant-touching businesses, institutional capital will primarily remain on the sidelines, which stymies the overall growth potential of the regulated sector,” Matt Hawkins, founder and managing partner of Entourage Effect Capital, told INN.

In a video interview with INN, Dan Ahrens, chief operating officer and portfolio manager with AdvisorShares, passionately expressed his disappointment with the political process that has stalled cannabis policy.

Watch the full video interview with Ahrens.

“A lot of politicians do what politicians do and they make campaign promises, they say things they are planning on doing and in reality it might not be true,” Ahrens said.

Nawan Butt, portfolio manager with Purpose Investments, offered some relief to the disappointment surrounding the glacial pace of cannabis reform in the US. “I think 2021 marks the year where federal cannabis reform finally became acceptable to talk about on a more senior level,” the investment expert said.

Despite missing out on banking reform, Butt explained that he views this moment in time as a special one for the multi-state operators, indicating that they have an “almost unfair advantage” at the moment.

“They've been able to consolidate quickly, gain market share and really be positioned quite well for what federal reform might bring to the table,” Butt told INN.

Cannabis trends 2021: Canadian producers' struggles pile up

Canadian companies in the cannabis industry are also eagerly awaiting changes in policy, because while lateral opportunities such as hemp-derived CBD production are available, plant-touching operations are prohibited for Canadians with senior listings in Toronto or the US.

A higher financial upside is calling to Canadian producers looking to leverage their experience and partnerships.

“We're Canadians. It's pretty natural to be drawn into a fixation on the scale of opportunity that’s there,” George Smitherman, president and CEO of the Cannabis Council of Canada, told INN during the Lift Expo in Toronto.

Canadian financial results continue to show signs of tumbling as leading licensed producers can’t get hold of market share expectations alongside revenue guidelines.

The three leading publicly traded producers —Tilray (NASDAQ:TLRY,TSX:TLRY), Canopy Growth (NASDAQ:CGC,TSX:WEED) and Aurora Cannabis (NASDAQ:ACB,TSX:ACB) — have spent over a billion dollars in acquisitions, but as recently outlined by a Globe and Mail report, this hasn’t created the results they had hoped for.

“The largest companies are typically unprofitable and are generally burdened with too much inventory and too much production capacity,” Alan Brochstein, a cannabis financial analyst with 420 Investor, wrote as part of his weekly newsletter.

Canopy Growth has told investors it does not expect to produce a profit for its operating year, while fellow producer Aurora Cannabis has shifted its attention to pursuing medical opportunities as a priority focus.

Cannabis trends 2021: Market continues to mature

Ashley Chiu, strategy and transactions management consultant at EY-Parthenon within EY Canada, said the Canadian cannabis market has seen 40 percent year-over-year growth. For his part, Brochstein indicated the Canadian market will likely exceed C$4 billion in sales for 2021.

Liz Connors, vice president of data and analytics with Headset, said there’s been a maturation in the way the market reacts to new regions moving ahead with cannabis policy.

“Now it kind of is becoming a standard thing,” Connors told INN. The expert sees this as a remarkable item to note as the market used to see an upheaval whenever any policy was even hinted at.

Butt told INN that 2021's cannabis downturn can also be traced back to countless new opportunities for investors who had previously stayed the course within the space.

“There have been lots of high-risk opportunities out there that have misplaced cannabis investment,” Butt said, pointing to cryptocurrencies and energy as two of the main sectors drawing away from cannabis.

Cannabis trends 2021: Investor takeaway

The downturn in the cannabis capital markets is indicative of the sentiment surrounding leading companies in Canada as they struggle with their financials. Meanwhile, in the US, the high-speed momentum many expected has stalled thanks to the policy-creation process in the country.

A year of investments contains a multitude of stories and narratives. For cannabis, a bitter air has clogged the industry since its early days. It remains to be seen if 2021 will serve as a stepping stone in the growth story of the market or a potential new reality for some of its players.