When it comes to pot stocks, the industry itself may be going through an evolutionary phase. Most analysts argue that demand for weed is there but companies continue to deal with shortages.
Canada’s pot companies are trying to take advantage of a number of legal markets around the world. Also, according to BDS and Arcview, consumer spending could grow to $40.6 billion in the next five years.
It is this near-term focus that has put investors on edge. Canada’s lacking supply chain and failure to meet demand have seen sales and margin growth tighten. And big investors are feeling the squeeze.
Analysts say that pot stocks and the companies behind them are about to see a crackdown. Unlike tech where you can remain unprofitable and still successful, cannabis is different. The market has also spoken.
Belt Tightening For Marijuana Stocks
Take a look at shares of Canopy Growth (CGC Stock Report) or Hexo Corp (HEXO Stock Report) after they reported declining sales. Even Sebastien St-Louis, CEO of Hexo stated best that the decline wasn’t because of bad business. “It was really a function of us not being able to package the dried flower fast enough.”
But then you have other companies like CannTrust (CTST Stock Report) ruin the party. The company put its shipping and selling on hold recently. Not because it couldn’t meet demand. The company was found to be operating in unlicensed formats. Needless to say that CTST is trading on a major exchange yet still sullies the waters by doing something like this.
Pot Stocks See Flow Of Big Money Bets
Large institutional buyers have come into some of the more popular marijuana stocks. Take, for instance, Vanguard Group. They owned roughly 2% of Aurora (ACB Stock Report) and just under 1.5% of Canopy Growth stock. That’s based on data from FactSet and was cited earlier this year by Stifel. Other Big Money includes the likes of BlackRock and Morgan Stanley.
Other big bets have come from some of the more “likely sources.” Besides Constellation and Molson Coors, Marlboro cigarette maker Altria (MO Stock Report) took a 45% position in Cronos Group (CRON stock Report) worth a cool $1.8 billion at the time.
Now it’s time to get the rubber to the road so to speak. With larger investors like these making big bets, pot stocks need to start delivering. That’s not just from a market perspective but from an operational one as well.
So, some of the more vital topics to consider is a company’s cost structure and consistent revenue growth. In the eyes of longer-term investors, the fundamentals have begun to matter much more than “the hype” behind the industry.