The young marijuana, or cannabis, market has been viewed from many different sets of eyes. Some see this industry as a mirror of the dot-com breakout, where small tech companies turned into giants creating wealth for millions. Many investors have looked at the cannabis market as totally volatile.
With many regulations still yet to be determined by international lawmakers, there are too many unknowns to confidently invest. While caution is needed when putting your money in this market, investing in marijuana stocks still appears to be a very profitable venture in the coming years.
Despite existing regulations, the industry as a whole shows no signs that this product will evaporate from the market. While many up-and-comers in this industry will fade away fast like dot-com stocks did in the late 1990s, look to these companies in 2020 to be leaders in one of the most young emerging industries in the world.
Aurora Cannabis (ACB)
While many signs point to the contrary, Canadian company Aurora Cannabis holds the most promise for 2020. The stock peaked at nearly $10 in March and is priced at $2.50 as of December 10, 2019. This drastic drop in value, however, is more representative of the Canadian cannabis market as a whole rather than any faulty business practices on the part of Aurora Cannabis.
Aurora suffered the fate of similar companies who witnessed a slower-than-expected release of restrictive regulations in Canada. Aurora, a global vendor of its cannabis line, also faced similar situations in European markets.
Aurora isn't totally innocent in all of its losses, though. Heavy spending in capital projects created a less-than-desirable amount of cash on hand. This made many investors conflicted when determining the long-term profitability of the company. So, with all these issues, why would it be beneficial to invest in a company such as Aurora?
Aurora recently stopped a couple of its capital projects in order to free up some cash. They plan on being around for a long time, and they are preparing for the future while weathering the current climate. They have shown the ability to remain afloat amid a historically unprofitable year in the cannabis industry.
Recently, they became the first company to open a store with its line of products in the Edmonton shopping mall. These openings will slowly continue. While the company suffered a setback in releasing one of its CBD products in Germany, they were recently approved in Ireland to offer one of its products. The regulations will continue to become less restrictive, and Aurora Cannabis will have a foothold in both the national and international markets.
Cronos Group (CRON)
The Cronos Group, which also has an international presence in the cannabis market, suffered the same as its rivals in 2019. Some investors felt they had a reason to even look more negatively at this particular company. Unlike similar leaders in the industry, Cronos did not directly focus on increasing its production of cannabis itself. Some market researchers took this as a sign of weakness in Cronos' ability to compete in larger markets.
Cronos, however, should not be viewed as similar companies heavily involved in production. Cronos likes to do business with growers who are already established in certain regions, rather than opening up their own production sit. This gives them maneuverability if an agricultural crisis occurs within the market that affects growth. It also keeps free cash in the coffers, as opposed to feeling pressured to spend on capital projects to keep up with production.
Another reason Cronos doesn't focus on production is due to its ability to operate in niche markets that emerge within the cannabis market itself. Working with subsidiaries like Peace Naturals Project and Original BC Ltd. has allowed Cronos to already begin building loyalty and brand recognition in a very young market. As deregulation continues in the future, Cronos will be in a position to take advantage of emerging markets from the ground floor.
Remember, while the two companies listed above look to be strong candidates to succeed in the marijuana industry, you really want to invest in the industry itself. Mutual funds, such as Corporate Cannabis, are comprised of stocks from many leaders of the industry and include Aurora Cannabis and Cronos Group.
If one company has a lower rate of success than its competitors in a viable market, investing in the group allows you to minimize the losses of one or two particular industry leaders.