By: Rob Wertheimer
Cannabis stocks have corrected 30-40% since May, and in some cases more. We’ve spent some time since launching coverage looking for grounding in valuation, looking at assets/replacement cost, brand investment, and generally finding that there’s not much firm yet to hold onto; valuation is all potential. Higher market caps create a dynamic of a positive feedback loop, attracting investors and offering the potential to exchange stock for more real assets. Falling valuations have the opposite effect.
So it comes back to narrative and excitement for now, and one driver of that in Canada is the December 16 (or likely a little later) launch of edibles, beverages, and vaping for the adult-use market. Producers have spent lots of time, energy, and money in preparation, and some have called out the new products as a lift to margins in early 2020.
However, edibles and beverage are unlikely to prove much of a market catalyst. Heavy users drive most consumption, and new users, trying new products, aren’t heavy users. That’s one fact that’s not always pleasant to fixate on. Beer consumption depends a lot more on the few users drinking a 6 or 12 pack every day, than on someone who drinks a beer or two on a weekend.