Happy New Year, one and all...
If you're a cannabis investor like me, 2019 couldn't have ended fast enough. After watching the market grow exponentially for over four years, I watched in horror as the entire industry imploded quickly over the last few months of the year.
It was like a wildfire...
Wildfires are one of the most terrifying and unpredictable natural events that happen. When they break out, it's like hell has descended on Earth. All it takes is an ignition point - a campfire, a flicked cigarette, a downed power line - to start it.
Once it starts, it's incredibly difficult to stop.
While here in the States we typically associate wildfires with California, the cannabis investing wildfire started in Canada.
The ignition point was Canopy Growth's financial results. The biggest cannabis company in the world posted a billion-dollar loss. The wind picked up from there in the form of panicked investors dumping shares. That fanned the flames and kept the fires burning with greater intensity throughout the year.
The losses mounted and acted as tinder which - like burning embers - left us deep in the red at the end of 2019.
But, like green shoots rising from the ashes, the cannabis industry will grow again this year...
Natural forest fires have occurred since the beginning of time. They play a crucial role in preserving the life-cycles of trees, plants, and animals. Without the regular fire purge, forests are subject to insect and disease epidemics that run rampant and are unable to be controlled.
But humans stepped in and decided that fires should be avoided at all costs. We did this typically to preserve private property.
Despite what Smokey the Bear once scolded, it's not entirely up to you to prevent forest fires. Sometimes you have to let them happen - or actually start them yourself.
You see, one of the most effective ways to avoid large-scale catastrophe is "controlled burning." That's when professional forest management burns certain areas of the forest on purpose in order to clear out dead wood and germinate the soil for future generations.
While the burn in cannabis stocks wasn't necessarily controlled, it achieved the same goals.
We were living in a forest where companies were staving off a necessary wildfire by purposely juking their financial stats. Ambitious investors were dumping more and more cash into companies that weren't showing any real profit. And the media - myself included - didn't see the forest through the trees.
We watched as industry giants like Canopy shed 50% of their stock value last year. Aurora Cannabis did even worse: it lost over 60%. I watched in horror as several of my small-cap cannabis stocks were unable to keep operations open and died on the vine.
But 2020 is going to be a totally different story.
Now the soil is fertile, the farmers are resilient, and the demand for crops has never been stronger...
The cannabis world continues to change... and grow.
The North American cannabis industry is on its way from $9.2 billion today to a massive $47.3 billion in the years ahead.
Here are my predictions...
The U.S. will continue to expand the market. The States are 10 times the market that Canada is.
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But right now only 11 states - plus Washington, D.C. - currently have recreational use, while 24 more allow some form of medical marijuana.
Illinois just went legal and is expected to become a $2.5 billion-a-year market.
We're going to see full-scale legalization in the U.S. soon, thanks to legislation like the House Bill 3884: The Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act and the Secure and Fair Enforcement (SAFE) Banking Act.
These bills will remove the marijuana plant from the federal Controlled Substances Act and protect banks that service state-legal marijuana businesses from being penalized by federal regulators.
The next reason that cannabis stocks should rise from the ashes, is that our neighbor to the north should finally start putting its act together...
Cannabis 2.0 has already begun. At the end of last year, Canada unveiled final regulations to enable the sale of cannabis edibles, extracts, and topicals, which will unlock what is forecast to be a multibillion-dollar industry.
It will also be expanding distribution and retail operations.
For example, Ontario will soon allow far more retail stores, with some projections adding 40 or so new stores a month, starting this month. Once that bottleneck is loosened, Canadian companies will finally be able to unload the massive supplies that have been literally and figuratively weighing them down.
Now that many of the trees have been burned, only the strongest will survive.
The most recent company I visited will be one of the tallest trees left. It has the products, the infrastructure, and the money to stand tall for years to come.
It already has a deal with an international beverage company to launch a series of cannabis beverages in the next few months. It also owns a patent for a cannabis powder that can be added to pretty much any food or drink. Its goal is to become the premier "Ingredients For Food Cannabis Company in the World."
It is also Quebec's largest supplier of cannabis, and holds a contract from Quebec to manage the distribution centers that process online orders for years to come.
That is some serious built-in revenue that can't be touched by competitors.
Not to mention that it has plenty of exposure to the U.S. market, once the politics shake out as I predict.
Do yourself a favor and grab some shares of this company to start out the new year. As they say, the best time to plant a tree was yesterday.
The next best time is today...
Godspeed,
Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. For more on Jimmy, check out his editor's page.