Cannabis Corner: No ‘Recreation’ Here

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

Whenever the market stumbles, the cannabis group goes over a cliff. We’ve seen that process play out again this week, with the marijuana stocks I track dropping another 20%.

Aurora Cannabis Corp. (NYSE:ACB) has fallen nearly 90% since peaking last spring, joining CannTrust Holdings Inc. (NASDAQ:CTST) and Hexo Corp. (NASDAQ:HEXO) in catastrophic territory. CTST is fighting to keep its stock listed after losing its licenses. That company is now worth $40 million less than its reported cash on hand. That 90% plunge brings CTST to the catastrophe levels where ACB is now.

If the second-biggest company in this industry has reached this point, a bounce is coming. First, however, we need to see real consolidation in what’s otherwise an overly fragmented field.

ACB is on track to book $280 million in sales this year. The numbers I’ve seen suggest that people around the world will buy $15 billion in cannabis in that period.

When the second-biggest player doesn’t even have a 2 percent share of the overall market, there’s vast room for smart executives to build a competitive business, starve rivals and grow the companies big enough to turn profits.

Until then, it’s literally all fun and games for most of these people. Most cannabis executives are amateurs in the best possible sense: they love their industry and their product.

Their enthusiasm built a recreational boom. But it’s going to take real hard-headed business sense to make even the biggest producers more than a hollow high.

We’re on the way. Canopy Growth Corp. (NYSE:CGC) bringing in top management with experience elsewhere was a step in the right direction.

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ACB is looking for a new CEO now. I hope the company find someone who is serious about taking the company to the next level.

Meanwhile, the cannabis field is wide open. The most interesting names will make it into my IPO Edge portfolio and we’ll reap the rewards of their innovation over time.

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