After closing at 52-week lows in November, cannabis stocks are staging a rebound, recouping much of the losses from that month. Is it safe yet to invest in this space?
Ontario announced that it “would take steps to move to an open market for retail cannabis stores.” By accepting applications in Q1/2020, 20 stores will open monthly, starting in April. The store opening rates will increase monthly, giving Canopy Growth (NYSE:CGC) an edge.
Other big players like Aurora Cannabis (NYSE:ACB), which is bleeding cash, and Cronos Group (NASDAQ:CRON) stand to benefit with a bigger retail presence.
The cannabis market is struggling badly to reach its target customer base for two reasons. Too few stores give the illegal market an advantage. Buyers may more easily buy cannabis illegally, hurting the legitimate players. Second, the illegal market still has lower prices. Lower overhead and costs help this market while pressuring the bigger players.
Cannabis firms, in turn, must ramp up spending to educate the market. It must tout the merits of a regulated market, including better quality and safety. In the near-term, stocks like Canopy Growth have unfavorable valuations.
At a $7-billion market cap, CGC stock is still risky. It is unlikely to re-test the $52.74 high reached in April 2019.
There is hope.
Cryptocurrency values broke down after the bubble popped a few years ago. The prices still rebounded, giving investors an exit point. The same may happen for cannabis stocks two to three years from now.