It’s been a rough few months for the cannabis sector but former Canopy Growth co-CEO Bruce Linton thinks that times are about to get even tougher for a number of pot companies, especially those without value-added products at the ready for the coming edibles and consumables market.
Pot stocks have been falling almost in lock-step with each other in recent months, as the market grows impatient with disappointing quarterly results and regulatory scandals, not to mention the headaches coming from the retail end where sales have yet to match up with expectations for the fledgling industry.
Names like Canopy Growth Corp (Canopy Growth Corp Stock Quote, Chart, News TSX:WEED), Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB) and Cronos Group (Cronos Group Stock Quote, Chart, News TSX:CRON) have all lost half of their value if not more since March and April, while the same has happened to US cannabis operators, many of whom trade on the Canadian Securities Exchange.
Yet, some are pinning their hopes on a recovery once Canada’s edibles market comes alive, likely by mid-December, with Health Canada’s guidelines on cannabis-containing treats like baked goods and candy, cannabis extracts and topicals like oils and makeup, all of which will be selling at a premium to the wholesale market for dried cannabis, currently the bread and butter of a number of Canadian licensed producers.
Bruce Linton: “I think people are going to be a lot more selective…”
Linton, who recently joined three companies in an advisor capacity —a Michigan-based cannabis dispensary chain called Gage, a CBD pet food maker called Better Choice and a medical/psychedelic provider named Mind Medicine Australia— thinks consolidation in the Canadian cannabis space is a given once the edibles market arrives.
“I think people are going to be a lot more selective,” says Linton, in conversation with BNN Bloomberg on Tuesday. “When January comes, the companies that have invested a lot of money to have the ability to have the new products [will have success] because the new products will have very little cannabis and a whole bunch of other ingredients at a great sale price, so the margins will be amazing compared to just selling dried pot.”
“And so you’ll find that the people who blew all of their money becoming a grower are going to have very little to deliver something that actually has a high value. So, I think that it’s going to stratify very quickly,” he says. “And then it’s going to come down to the trials that they’re running. That’s going to drive those individual stocks, not the sector, because the IP will be attached to one company.”
One of the issues dogging the sector has been the ongoing drama with pot company CannTrust Holdings (CannTrust Holdings Stock Quote, Chart, News TSX:TRST), who it was revealed on Tuesday had their licensed suspended by Health Canada following revelations earlier this year that the company had been growing cannabis in unlicensed greenhouses.
CannTrust now has ten days to appeal the decision, with a denied appeal triggering a decision from the feds on whether to reinstate or revoke CannTrust’s license.
For Linton’s part, he says CannTrust now presents an opportunity in waiting for the right company to move in.
“I wish someone would buy the assets of CannTrust and take it off the news and out of the headlines,” Linton says. “If there’s somebody else thinking about going public, the right thing to do is to conditionally acquire the assets of CannTrust, get Health Canada to say that they’re going to treat them okay because, you know, you say you’re going to fire anybody who makes over $50,000, and get on to putting that thing to purposes that are regulated.”
“If I was a private company right now and I had to differentiate from the market before I was listed, I think that doing a transaction like that is going to create a differentiated value. And I bet you’ll get a great deal and you’ll end up with an asset that’s going to produce a lot of cannabis and a regulator that likes you,” he says.