Last year in 2019 was when cannabis stocks were supposed to take off, but they didn’t. Despite all the hype surrounding the legalization of recreational marijuana in Canada the market failed to show the same enthusiasm. Investors thought that weed companies would be the next tech startup boom. Canadian marijuana stocks have continued to tank despite initial optimism.
Weed company earnings are in the toilet
The increased amount of weed available on the open market has adversely affected earnings in the industry. It’s a race to the bottom for many weed companies in Canada and the U.S.
Increased competition has continued to push cannabis prices down, this has further decreased earning revenues for the big companies.
Cannabis prices continue to drop
Statistics Canada has analyzed cannabis prices from black market cannabis retailers. The average price of cannabis fell to $7.37 per gram in the third quarter rom $7.87 per gram in the second quarter. Black market cannabis prices dropped to $4.59 per gram in the third quarter from $5.94 per gram in the second quarter.
The government has been data scrapping cannabis prices from black market retailers since May 2018. The data indicates that cannabis prices decline as product becomes more available.
Aurora Cannabis Inc.
Aurora Cannabis Inc. stock price decreased from $9.05 in 08/06/2019 to $2.50 in 01/16/2020. Sales of recreational cannabis continue to decline. Analysts have forecasted the continued decline into 1Q2020.
Canopy Growth Corp.
Canopy Growth Corp. the largest cannabis company has also been affected by plummeting sales. They are currently trying to diversify into the edible, drink and vape market in Canada.
Sundial Growers Inc.
Earnings for Sundial Growers has also been hurting with a -2.97% Q2. Sundial was also accused for selling C$2.5 million worth of bad weed to customers. The bad batch of cannabis included mold and rubber bits. The Canadian cannabis company Zenabis Global disclosed they had to return a half ton of bad pot from an unnamed company.
Market valuation cannabis companies
Companies like Aurora and Canopy have been overvalued. The shakedown of publicly traded cannabis companies got an early wakeup call. Investors and analysts who don’t understand the cannabis market from a ground floor perspective were overly optimistic. Most major cannabis stocks have crashed 51% to 73% since February 8, 2019.
The bubble seems to have burst in the weed sector. You can’t use the same metrics for tech companies like Apple and Amazon that you do for cannabis companies. The recreation weed culture can not be defined by analytics and boring spreadsheets.
The future of cannabis companies
Smaller companies providing a top notch product to their consumers is the future of cannabis. The quick rich delusion of investors wanting to strike gold in this industry is naive. Recreational cannabis culture is a way of life not ruled by boring financial metrics.
Independent online retailers like QuickGreens focus on the consumer first and foremost. The moral of this story is to continue to support the small guys who provide high quality flower for competitive prices. The big Canadian marijuana companies that continue to face downward spirals does not have to affect the end consumer.