Cannabis Corner: Still a Little Crowded

Hilary Kramer

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

Pulling the plug on CannTrust Holdings Inc. (OTCMKTS: CNTTQ) has given surviving cannabis distributors a little relief.

Admittedly, CTST never accounted for even $80 million in annual sales, but simply relinquishing that slice of the global market gave the survivors the fuel to rally 4% this week. Aurora Cannabis Corp. (NYSE:ACB) and Canopy Growth Corp. (NYSE:CGC) did well.

Tilray Inc. (NASDAQ:TLRY) has been a true powerhouse, tripling in value over the past month. As the smallest of the “big three,” it has the most at stake here and the most to gain from CTST’s downfall.

Of course, TLRY has a lot of ground left to recover for shareholders. The stock has been battered. But, now we know it won’t be the first company to fall. That’s enough to keep hope alive.

And opening up an $80 million slice of the cannabis market is actually significant. The latest Canadian sales numbers I’ve seen have about $150 million a month flowing through this industry.

CGC has captured about 30% of that market. ACB and TLRY together have another 25% share. That leaves room for the giants to practically double by simply letting weaker operators fall along the way.

TLRY can practically hit its revenue growth goal for 2020 by simply absorbing CTST’s abandoned supply contracts. There’s plenty of room here for opportunistic expansion.

All management needs to do is keep executing on its plans, walking the tightrope between spending money to lock down long-term distribution deals and maintaining enough cash to keep going.

They don’t want to be the next cannabis stock to go under. I don’t think it will and neither does Wall Street.

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Most of the other vendors in this space are tiny independent growers. They’re going to need capital they can’t find in this market environment.

This is the moment Big Cannabis was built to exploit. When we see TLRY, CGC and ACB start absorbing failed competitors, it will be time for investors to get off the sidelines and put money to work.

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