Many pot companies will die in 2020, this exec says

The ups and downs in Canada’s pot sector over 2019 may be nothing like the carnage likely to come in 2020, according to cannabis company CEO George Robinson of RavenQuest BioMed (RavenQuest BioMed Stock Quote, Chart, News CSE:RQB).

Robinson says that both CannTrust-style implosions and the petering out of profitless companies are to come.

It’s been a whirlwind of a year in marijuana where stocks have been decimated as a combined result of regulatory bottlenecks, too-slow rollout of retail and general market impatience with companies still struggling to find their feet in the newly opened cannabis environment.

The Horizons Marijuana Life Sciences ETF, which tracks the sector as a whole hit a new all-time low on Monday to round out what was a forgettable year and “quite disappointing” fourth quarter,according to Horizons president and CEO Steve Hawkins, who announced a rebalancing of the fund that saw a number of names dropped due to dwindling market capitalizations.

“Within HMMJ's portfolio, this has resulted in the survival of the fittest: HMMJ's holdings are now more concentrated on companies that are maintaining a strong position within the cannabis industry, despite difficult market conditions,” wrote Hawkins in a press release.

But the tumult will come in a different form going forward, according to Robinson, who thinks the legit industry will continue to have a tough time taking business away from the black market and more pot companies will be found trying to skirt regulations in effort to keep their businesses running.

“There’s more to come. There’s pressure on a lot of companies to generate revenue right now and obviously margin,” said Robinson, who spoke to BNN Bloomberg on Monday.

“We won’t see any of the big, big players have the problem but we’re going to see some of the smaller ones have the same types of incidences.”

“We’re just in Year Two and we have some 300 licensed producers and some of them are going to make bad choices when faced with either shutting down or trying to find ways to get revenue in the company. Unfortunately, if they’re led by people who really don’t understand the regulations, they’re going to get convinced they can do something that’s outside of the regulations. Whether they get caught near term, over time these players will get caught,” he said.

Robinson said that despite a number of issues plaguing the industry, from poor quality flower to public concerns over vaping, Canada’s marijuana sector will start to flourish in the years to come.

“Remember, the government said that this is a seven to ten-year process of whittling away at the black market. It’s going to be a really interesting play going into 2020 but I think that we’re going to be a $2-billion-plus in revenue targets for the licensed producers for 2020,” Robinson said.

“I think that the death of many companies is unfortunately going to occur but I think that you’re going to find many of the mid to smaller groups coming together trying to find ways to differentiate what they’re telling investors and how they can rejig the story a little bit,” he said.

“Now that there are 300 licensed producers out there, it’s a hard story to tell that you’re growing cannabis and even if you’re making a Cannabis 2.0-type product, it’s still very tough on that story. There will be different ways that people are going to come together to create new lines of thinking and maybe more focus on the picks and shovels versus just the cannabis growing or product side,” Robinson said.