A panel of cannabis experts shared viewpoints and predictions for the industry on a global level at day two of the Extraordinary Future conference in Vancouver on Thursday (September 20).

Hosted by Peter Guo, BC leader of enterprise risk services with MNP, the panel included: Rosy Mondin, CEO of Quadron Cantech (CSE:QCC); Chris Wagner, CEO of Emerald Health Therapeutics (TSXV:EMC); and Danny Brody, vice president of investor relations with the Green Organic Dutchman (TSX:TGOD).


The panel started with a question on what’s causing the current valuations in the market and what investors should know before getting in or out of the sector.

 

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Wagner reminded the audience that the market valuations take into the consideration the next six months of development, and may be a cause for some of the extreme cannabis estimations seen in the market at the moment.

The Emerald Health executive highlighted that the US listings for some Canadian producers have opened the doors for retail investors to gain exposure to cannabis.

“[Retail investors] are enjoying the fact they can invest in a NASDAQ company or New York Stock Exchange company so I believe it’s retail driven,” Wagner said.

Brody explained cannabis valuations are still dominated by speculation and rumors.

“For traditional metrics, I think you can almost throw all that out the window for the LP market right now … there’s a lot of speculating down [in the US] driving the industry,” Brody said.

The investor relations representative predicted that regular valuations for public companies will begin dominating the industry again soon.

“We can build the facilities here, build the technology, build the infrastructure, but the real market is going to be international, it’s going to be in Europe, South America, global.”

 

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Brand power within the cannabis space

Mondin told the audience that cannabis should be seen as a base ingredient, and brands will be the product able to move between jurisdictions.

Her company has a direct focus on the cannabis extraction market. The executive said it plans to hold five Canadian facilities, sell machinery for these and also sell fully decked out facilities to other cannabis businesses.

“Everyone is going towards extraction,” Mondin said at a later panel from Quadron.

Brody compared the cannabis industry to the consumer packaged goods (CPG) sector. He also highlighted that the true value for the industry will be in brands.

“At the end of the day, it’s a product that’s going to be packaged up and the value is going to be in the brand, very similar to any other CPG industry,” Brody said.

“Like any other CPG industry, there’s going to be two to three majors. The rest will get acquired or fall by the wayside, so I think we’re in for a very exciting 2019, 2020 and beyond.”

When asked about the entry of other consumer good companies into cannabis, Wagner explained that realistically only about 50 cannabis companies in Canada could lock down deals with the major industry players moving into the space.

As the entire cannabis market is on hold to see which other established industries will seek an entry, the Emerald Health executive guessed pharmaceutical companies are next.

 

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With legalization a few weeks away in Canada, companies have already been researching and preparing for the opening of the edibles and infused markets. The panelists explained how consumers haven’t been able to obtain the same experience through black market products.

“People want consistency and predictability,” Brody told the audience. The Green Organic Dutchman representative added that so far in the cannabis consumer experience that type of repetition hasn’t been possible to replicate.

Brody explained that the mainstream market will understand and seek edibles and other similar novel delivery methods once it’s known there will be consistency every time a product is consumed.

The Green Organic Dutchman has placed bets on this type of product being best represented through cannabis-infused beverages, which have taken off as a trend for cannabis companies to embark on.

On Monday (September 17), rumors appeared of the Coca-Cola Company (NYSE:KO) being interested in a partnership with Aurora Cannabis (TSX:ACB) to develop wellness beverages with cannabis.

Investor takeaway

Although investors are facing volatile times with cannabis stocks, one key takeaway from this panel of experts is the expectancy that established metrics and values are soon to arrive and will potentially bring stability back into the market.

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.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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