Commodities and Gold

Cannabis Corner: No ‘Recreation’ Here

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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Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. The Financial Times describes Ms. Kramer as “A one-woman financial investment powerhouse” and The Economist distinguishes her as “one of the best-known investors in America”. Ms. Kramer is often quoted in publications such as the Wall Street Journal, New York Post, Bloomberg, and Reuters. She is a frequent guest commentator on CNBC, CBS, Fox News and Bloomberg, providing investment insight and economic analysis. Ms. Kramer was an analyst and investment banker at Morgan Stanley and Lehman Brothers. Ms. Kramer founded and ran a long-short hedge fund and has been chief investment officer overseeing debt and equity portfolios. Since 2010, Ms. Kramer’s financial publications have provided stock analysis and investment advice to her subscribers. Her products include GameChangers, Value Authority, High Octane Trader, Triple-Digit Trader, 2-Day Trader, IPO Edge and Inner Circle. Ms. Kramer, a Certified Fraud Examiner, has also testified as an expert in investment suitability, risk management, compliance, executive compensation, and corporate governance. Ms. Kramer received her MBA from the Wharton School at the University of Pennsylvania and her BA with honors from Wellesley College. Ms. Kramer has provided testimony regarding investment policy to the U.S. Senate and is a frequent speaker on the markets, portfolio management and securities fraud and compliance. Ms. Kramer is also the author of “Ahead of the Curve” (Simon & Schuster 2007) and “The Little Book of Big Profits from Small Stocks” (Wiley 2012).