Cannabis Trends 2019: Speed Bumps Along the Way

In 2019, investors in the marijuana space saw a tumultuous year that bought a critical reexamination of the space at large.

Click here to read the latest cannabis trends article.

As 2019 wraps up, marijuana industry observers are left to pick up the pieces of a chaotic year — a period that gave investors one of the strongest market reality checks so far.

Despite critical political movement alongside the development of new product varieties, investors and companies faced the crushing aspect of growing pains for marijuana stocks. Long gone are the days of inexplicable double-digit price jumps based on sentiment.

Here, the Investing News Network (INN) offers a look back at the most critical developments in the industry alongside commentary about cannabis trends from 2019.

For a recap of the year with highlights per quarter in 2019, investors can read up on Q1, Q2 and Q3.

Cannabis trends 2019: New financial reality for marijuana investments

This past year has offered a new set of standards for those interested in investing in marijuana stocks. A fresh reality has set in, with analysts and investors demanding higher scrutiny from their picks and no longer taking announcements purely at face value.

“Investors have started to ask more discerning questions about each opportunity, to differentiate business models and to focus on the path to profitability,” Jeff Fallows, president of Valens GroWorks (TSXV:VGW,OTCQX:VGWCF), told INN.

But what’s at the core of these drastic sentiment changes? For many experts, the sector is simply maturing; while it’s been a difficult time for investors, it is a necessary step in the creation of a market.

While in the past companies with little relation to the established players in the industry would enjoy share price boosts during upswings for the entire market, the key now is differentiation.

“When a downdraft happens, all companies are taken down with it,” Clint Sharpless, CEO of Heritage Cannabis Holdings (CSE:CANN,OTCQX:HERTF), told INN.

Although many expected that the opening of legal sales in Canada would create a thriving market, the actual results have highlighted the slow pace of expansion in the country.

Due to a limited amount of stores in critical markets such as Ontario and British Columbia, sales have been a disappointment, according to Mark Noble, senior vice president of exchange-traded fund (ETF) strategy at Horizons ETFs Management (Canada).

In an email, Sherri Altshuler, partner and co-chair of capital markets and cannabis groups at Aird & Berlis, said the volatility this past year was due to “growing investor distrust and demand for results.”

Yet one of the hotbeds for the cannabis market — the Canadian Securities Exchange (CSE) — saw another year of growth regarding its marijuana holdings.

“The top 10 companies that have raised the most money on the CSE in 2019 are all cannabis companies, and the number of cannabis companies listed on the CSE have remained constant through the year,” Richard Carleton, CEO of the CSE, said in a newsletter from Aird & Berlis.

This shift, according to Altshuler, has also caused a drop in go-public transactions and financing activity across the board.

“The concern about valuations was certainly warranted, as we’ve seen more than a 40 percent decline in the sector year-over-year,” Noble told INN.

Investors have adjusted in many different ways throughout 2019. Ashley Chiu, EY’s cannabis strategic growth and risk leader, told INN she noticed a change from talk about “funded capacity” as a metric for cannabis companies to more direct discussions on the road to profitability instead.

Volatility was also strong in the market given the strong Canadian retail investor base for cannabis stocks, Noble told INN.

“There is very little institutional money in the marijuana sector, so these investors can be deterred by changes in the market very quickly,” he said.

Cannabis trends 2019: US investor interest picks up

This past year served as the culmination of a shift in investor attention from Canada to the US. While interest remains present for Canadian leaders, experts have noticed more interest in US stocks, mostly due to the bigger opportunity attached to the country and the discount in valuations for US names.

“While we correctly judged that the US market would grow faster than Canada during 2019, we were surprised by the magnitude of the underperformance in Canada,” said Charles Taerk, president and CEO of Faircourt Asset Management, and Doug Waterson, CFO and portfolio manager with Faircourt Asset Management. The duo co-manages the Ninepoint Alternative Health Fund.

Multi-state operators commanded the attention of investors with constant state expansions and with solidification in particular states. However, these companies faced a critical challenge thanks to antitrust reviews from the federal government because of the size of their acquisitions in the space.

While these reviews caused some investors to worry about the state of the market, one expert views them as a beneficial marker for the industry moving forward.

Russell Stanley, an analyst covering the sector with Beacon Securities, told INN he noticed the uncertainty rising within the sector due to the delay in deal completions associated with Hart-Scott-Rodino antitrust regulations. But he indicated the oversight may benefit the space since the companies will be able to better structure their transactions, or might even completely change course.

“This has reduced the balance sheet strain faced by companies today, while minimizing the risk and magnitude of eventual acquisition-related writeoffs,” Stanley commented to INN. “Buyer’s remorse is not necessarily a bad thing.”

Despite the rush for the US markets, Stanley told INN he was surprised to see the failure of full legalization in key states like New York, New Jersey and Connecticut.

“There had been so many state-level victories leading up to spring 2019 that the loss of momentum caught many off guard,” he said.

Cannabis trends 2019: Scandals tarnish industry’s reputation

The Canadian cannabis market took a brutal hit as revelations of wrongdoings from established licensed producer CannTrust Holdings (NYSE:CTST,TSX:TRST) came in. The firm willingly operated outside regulations from Health Canada and paid the price.

Alongside the downfall for CannTrust, including the public outing of its then-CEO Peter Aceto and Eric Paul, a former CEO and chairman, the sector faced increased questions of accountability and regulations.

“Unfortunately, these revelations caused investors to lose confidence in a sector that was already having a difficult year,” Taerk and Waterson told INN.

Scott Cuthbertson, vice president of investor relations with Biome Grow (CSE:BIO,OTCQB:BIOIF), told INN he still views this case as the most striking item of the year. Cuthbertson said CannTrust, being “foolish enough to try and do what they did,” dragged the entire sector with it.

Cannabis trends 2019: Investor takeaway

During 2019, investors learned of the very real pitfalls in the marijuana stock market; however, the sector still enjoyed a period of maturation that may — in the long run — benefit the entire space.

At the MJBizCon year-end event in Las Vegas, Nevada, an immediate theme appearing out of the first day of panels was the need to understand that investing in marijuana is still a desirable activity; put simply, the market has evolved enough that fundamentals will now dominate the picks in the space.

“In our view, 2019 showed investors that not all business models are the same, and potential investment gains lie in identifying the companies that have a strategic advantage, a strong balance sheet and a clear path to profitability,” Fallows from Valens GroWorks told INN.

As equity becomes more expensive and a variety of companies are set to face an even more critical market, investors will have to be wary of the names they support as differentiation becomes key among cannabis competitors.

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: Biome Grow, Heritage Cannabis Holdings and Valens GroWorks are clients of the Investing News Network. This article is not paid-for content.

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.

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Catch up and get informed with this week's content highlights from Charlotte McLeod, our editorial director.

Top Stories This Week: Powell Gets Fed Nomination, Using Gold in a Market Correction youtu.be

We're back after a break last week with quite a bit to cover in the gold space.

After running up past the US$1,860 per ounce mark midway through November, the yellow metal has taken a tumble. At the time of this writing on Friday (November 26) afternoon, it was sitting just under US$1,790.

Gold's losses this week have been attributed to elements like a stronger US dollar and better Treasury yields, although Jerome Powell's US Federal Reserve chair renomination has pulled other factors into play — some market watchers believe he may move to taper and raise interest rates faster than anticipated.


If the Fed follows its previously laid out timeline for tapering, it will wrap up in mid-2022; the central bank has said it won't raise rates until after that. It has also emphasized that its roadmap may change if necessary.

Looking at the larger picture for gold, I heard recently from Nick Barisheff of BMG Group, who believes the stock market is due for a major correction.

"The market is due for a major correction. What will cause it and when it will happen is anybody's guess — it could be tomorrow, it could be six months from now" — Nick Barisheff, BMG Group

It's impossible to know when this correction will happen, but Nick emphasized the importance of acting before it's too late. He pointed out that investors are typically slow to get out of the market once a crash actually begins — they wait for a turnaround, and by the time it's clear there won't be one, they've experienced big losses.

In his opinion, the solution is to get out of the stock market early and transfer money into gold.

Here's how Nick explained it:

"Instead of taking your money off the table and going into cash … you go to gold (because cash is devaluing daily). Gold will at least hold its own and probably appreciate … so by sitting it out in gold you can wait until the market finishes correcting and then buy back in" — Nick Barisheff, BMG Group

With gold's future in mind, we asked our Twitter followers this week what price they think the metal will be at the end of 2021. By the time the poll closed, most respondents had voted for the US$1,800 to US$1,900 range.

We'll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

Finally, in the cannabis space, INN's Bryan Mc Govern spoke with Dan Ahrens of AdvisorShares to get his thoughts on 2021 trends and what's ahead in 2022.

Dan was candid, and said if he had to choose one word to describe the cannabis market in 2021, it would be "painful." Like many others, he's been disappointed in the industry's performance — while positivity initially ran high due to excitement about potential federal changes in the US, ultimately progress has been slow.

"Cannabis started with a big run-up in January and February ... and things dragged from there" — Dan Ahrens, AdvisorShares

Still, Dan has hope for 2022 and said it will be a "huge year" for cannabis. He believes US reforms will come sooner rather than later, and in his opinion those widely anticipated changes will bring a wave of M&A activity.

Specifically, he expects to see alcohol, tobacco and other consumer packaged goods companies making deals with cannabis players, not just cannabis entities doing transactions with each other.

"Those big alcohol companies, tobacco companies, other consumer packaged goods product companies — they're waiting. They're waiting on the US" — Dan Ahrens, AdvisorShares

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there's someone you'd like to see us interview, please send an email to cmcleod@investingnews.com.

And don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, 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.

gold bars

2020 was a banner year for gold-backed ETF inflows, but interest has lagged this year as investors become more comfortable taking risks.

In 2020, gold-backed exchange-traded fund (ETF) inflows ballooned to an impressive 877 tonnes, marking the largest one year intake in ETF history.

Investor appetite was fueled by economic stimulus mixed with concerns about COVID-19 closures, which together brought risk-averse buyers to the yellow metal in droves, propelling investment demand.

"Over the first three quarters of 2020, gold ETFs accounted for almost two-thirds of total investment demand," notes a monthly ETF report released by the World Gold Council (WGC) in January.


"This is significantly higher than any previous full year. Gold ETF demand was also equivalent to a quarter of the average annual gold mine production over the past five years."

Since then, gold ETF demand has waned as investors become more comfortable taking risks. So far, 2021 has seen outflows of 269.1 tonnes compared to 87.6 tonnes of inflows. Of the first 10 months of the year, six registered net outflows from the ETF segment.

In fact, a large part of gold's muted Q3 price performance has been attributed to a 7 percent decline in demand coming largely from the ETF segment. This trend continued in October, when gold ETF holdings shed 25.5 tonnes.

"Global gold ETF holdings fell to 3,567 tonnes (US$203 billion) during the month — notching year-to-date low levels — as investor appetite for gold diminished in the ETF space following price declines in August and September," an October WGC gold ETF report states.

After two months of pressure pushed the gold price to a six month low at the end of September, October saw the metal begin to rebound from the US$1,750 per ounce range to US$1,819.

Adam Perlaky, senior analyst at the WGC, told the Investing News Network (INN) that gold's price positivity in October was largely driven by growing inflationary tones.

"In recent years, gold has been inversely correlated with nominal interest rates, and yet gold strengthened during the month despite higher nominal rates," he said via email. "This is likely a result of rising inflation expectations, though changes in the relative move in interest rates may have had an impact."

He added, "Though higher rates could be a headwind for gold, broader concerns of inflation and a potential recession highlight gold's value as an effective portfolio hedge."

The role of gold amid uncertainty

Gold's use as a hedge against inflation is likely to come into focus in the coming months, a sentiment that was echoed by Juan Carlos Artigas, head of research at the WGC.

Artigas explained that while some are of the belief that the "elements of high inflation we've seen so far are transitory" and will dissipate, there will be longer-term reverberations from the current inflation, and potential secondary effects from the fiscal and monetary policies that were put in place to restart the economy.

In mid-November, JP Morgan (NYSE:JPM) said it anticipates that the US Federal Reserve will raise rates in September 2022 by 0.25 percent, followed by 25 basis point increases on a quarterly basis until real rates hit zero.

"Gold still can face headwinds from potentially higher interest rates," said Artigas.

"(The) opportunity cost of holding gold is one of the drivers of performance, and especially in the short and the medium term, interest rates tend to influence gold's behavior significantly, especially in a period where investors are looking to understand how central banks will behave."

However, as the head of research at the WGC pointed out, there are also some tailwinds that could move gold higher, including inflation that may not be transient, but more structural.

He also pointed out that interest rates are still historically very low, which has pushed investors to make their portfolios more risky. Hedging against this type of exposure is positive for gold's investment side. Additionally, on the consumer side, US infrastructure spending could also serve as a catalyst to more gold upside.

"What we know historically is that better economic growth tends to support consumption of gold, whether it is in the form of jewelry or technology, and 2021 is a good example of that, where you saw the contraction in gold-backed ETF holdings, you (also) saw an increase in demand coming from jewelry, technology and even bar and coin investment," Artigas commented to INN.

Another factor the researcher is watching is central bank gold holdings, which are on track for a 12th consecutive year of inflows. Artigas noted that a 2021 survey of central bankers conducted by the WGC found that the monetary institutes are interested in "expanding the role that gold has in foreign reserves."

"We do expect central banks to continue to be net buyers," he said, adding, "We have seen investors, especially more strategic longer-term investors, taking advantage of the price pullback that we saw in previous months as an opportunity to add gold to their portfolios."

For investors wanting to look at the strategic role gold has played throughout history, the WGC recently released a five part documentary series titled The Golden Thread.

The price of gold was at the US$1,790 level on November 25.

Don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, 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.

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