At first glance on paper legal cannabis should be a lucrative investment. Thanks to the addictive nature of the product once you have a customer you are likely to have them for life so repeat business is guaranteed. Even better there is also the medical side of the business which should provide a whole other income stream. The government when it legalised cannabis made claims that it would kill the black market which means less competition and more room for profit. What’s not to like?
Well, a lot as it turns out. After one year of Cannabis being legal Canadian investors are feeling burned.
Since recreational cannabis became legal on Oct. 17, 2018, the shares of what were then the 10 largest Canadian cannabis producers by market capitalization have been bludgeoned, yielding an average negative return of more than 57 per cent for investors.
Tilray Inc. alone has lost more than $14 billion in market cap, and Aurora Cannabis Inc. has shed $6.8 billion. Six of the Top 10 have lost at least half their value, with scandal-plagued CannTrust Holdings Inc. suffering such resounding losses that it no longer appears in the list. Of the 10, only Cronos Group Inc.’s market cap has grown over the past 12 months, though its share price has declined, like those of all the others on the list.
So what went wrong?
- They were unable to meet consumer demand.
- Lack of inventory led to massive delays for even simple orders.
- Investors quickly lost faith in the investment.
- “Regulations blocking advertising and enforced basic packaging have also made it difficult to establish brands in the space”
Looking back, Ninepoint Partners LP portfolio manager Charles Taerk said investors expected more dispensaries to be in place to meet the demand, an expectation that has still not materialized.
“A lack of dispensaries means a lack of education means a lack of sales growth that was initially anticipated,” said Taerk, who noted there are still only 25 legal cannabis retailers open in Ontario, although that number is expected to rise to 75 by the end of the year.
business.financialpost.com/cannabis/cannabis-business/cannabis-investing/feeling-burned-the-first-year-of-legal-cannabis-has-been-a-complete-disaster-for-investors