4 Predictions For The Cannabis Industry In 2020

By The Fresh Toast's JJ Mckay, provided exclusively to Benzinga Cannabis.

As 2019 comes to a close, here’s what we believe will emerge from the cannabis industry in the new year.

As the largest voice in cannabis with over 2 million people reading our content daily, The Fresh Toast has the unique opportunity to observe the trends, successes, innovation and struggles of the marijuana industry on a regular basis.

Here are our predications for 2020.

No major legislative changes

As an intense election year starts, the focus on marijuana will take a back seat in Washington D.C.. Last year, the Brookings Institution conducted a public opinion survey that showed two-thirds of those polled were open to legal marijuana, but it isn’t a burning issue that drives election decisions. We predict the FDA will continue to focus its attention on medical marijuana, vaping and CBD, but no major changes are expected.

At least two states will legalize marijuana and slightly expand the market, but the decision will be on unlocking additional state income as opposed to massive public support. California and Washington, inadvertently, will continue to promote the black market as they focus on revenue and enact high taxes instead of moving an entire market into the legal space.

Expect continued disruption with illegal products and the ongoing fumbling of the Florida rollout where 71% of the electorate voted for medical marijuana. Canada will refine its rollout providing better access to the end consumer, and as they do, they will highlight effective benchmarks for both Canada and the U.S. markets.

Focus on company outcomes

Still recovering from the marijuana stock hangover, focus will be on companies that deliver profits, or, at the very least, solid profit-centric growth. One of the most important moments of 2019 was the appointment of David Klein as board chairman of Canopy Growth. This move, supported by their biggest investor, Constellation, positions them away from Wild West start-up to potential Fortune 1,000 company. Klein’s appointment signaled that the company will have the culture to enjoy the benefits of the staid public markets.

2020 will also see an expansion in Canada and newly legal U.S. states with retail outlets. This will unfold in two ways. One is real time data and results from the open markets, especially in Canada. You are less likely to have massive stock share swings, like Tilray prior to Canadian legalization or Massroots before the focus on realistic business plans.

The second is with increased coverage on corporate governance and ethics as was exposed by the Medmen lawsuit or CannTrust’s operations. The public loves a juicy scandal, so expect more companies to have their day in the public eye.

Consolidation in the market and focused investment

Regardless of year, the trend is always “the big get bigger.” Solid companies, such as Have a Heart, GW Pharma, Charlotte’s Web, and others — Green Sky Labs, Headset, Harvest Health & Recreation — will continue to grow, but smaller companies will continue to have an uphill battle.

Like alcohol, fashion, and retail, size matters. It is hard to be profitable and return value to investors if you have a limited market. Investors are also wiser realizing just because a company is entering the marijuana space, it doesn’t guarantee you a bountiful return. Expect to see an increase in mergers, buy-outs and company closings.

With the whole of the marijuana industry grossing roughly the same amount as Subway, it is flooded with ancillary companies trying to solve every problem from point of sale and grow lights to  edibles and farm facilities. In the more than 500 industry events held annually across the U.S. and Canada, you see a frenzy of smaller companies trying to break out of the pack. With the rollback of tax incentives for craft brewery reducing the beer market, you will see a “rightsizing” of the market in the next 18 months — this could be a lesson for the edibles market.

Brenda Smith, Managing Partner of CB Capital Concierge, notes that cannabis is a capital-intensive industry funded largely by private capital. She sees a slowdown in public filings on the Canadian Stock Exchange (CSE), and more diligence from private investors unless companies have a clear path to profitability. The green rush is over: Companies need to demonstrate fundamental value and a competitive advantage in the market.

CBD continues to grow

In 2016 CBD was considered a part of the marijuana industry. Now it is viewed as a stand-alone market that will rival cannabis in size. Like the vitamin and supplement markets, it has taken a strong hold with the public and will continue to generate products and profits.

The absence of psychedelics has also opened retailers from Walmart to Dillard’s to placing CBD products on store shelves. Expect the FDA to shine a light on CBD with a focus on testing.

The Farm Bill, passed in December 2018, allows for a somewhat expansion of the market which means an increase of products. The short take is that the market will continue to expand and grow, but can they keep the mainstream market’s attention if they aren’t effective?

And as a last note, may everyone have a healthy and prosperous new year!

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