Cannabis Corner: Growth Through Consolidation

Hilary Kramer

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

While I prefer smaller and more innovative names, it’s nice to see Big Cannabis bounce back this week. After all, while the stocks don’t always make sense, the companies themselves are taking huge strides.

This was always a profoundly fragmented industry dominated by cottage producers and do-it-yourself retail models. In many parts of the country, the “green gold rush” still looks a lot like the Wild West.

But the relatively large publicly traded cultivators have spent the last few years ruthlessly absorbing competitors. They aren’t innovators so much as consolidators.

You know I’ve wanted to see real signs of consolidation before stocks like Canopy Growth Corp. (NASDAQ:CGC) and Aurora Cannabis Corp. (NYSE:ACB) make sense in my portfolio.

Without discipline, raw plant prices will stay weak. Discipline is impossible without weak producers giving up. 

And until we see that happen, supply is going to keep growing faster than demand. That’s not good for investors.

With that in mind, it’s nice to see the giants on track to expand their share of a rapidly maturing overall cannabis market. ACB is looking for 50% higher sales this year. CGC might raise its top line 70%.

When the giants in any industry keep growing at that rate, clarity is on the way. Meanwhile, the disruptors are where the real action is.

I’ve got triple-digit-percentage cannabis fun in my IPO Edge portfolio and more on the way. This is an entry point, not the end of the world.

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