Being from Canada, I’ve had a firsthand look at the rollout of legal cannabis here – the second phase of which has been dubbed “Cannabis 2.0.”
It hasn’t gone perfectly. We’ve seen the Canadian cannabis sector decimated so much over the past 14 months. But that’s all changing…
You see, a significant factor in the sector’s struggle has been the inability of producers to offer competitive products.
When 80% of the cannabis products consumed aren’t smokeable, but in the edible format – cookies, chocolates, muffins, you name it – you simply can’t compete with an illegal market.
The government isn’t slow, though. They know this.
The problem was regulating the product and keeping it safe and out of the hands of children, which resulted in products with plain packaging, under 10 milligrams of THC per package, and little to no curb appeal.
But now… we’ve had a year and a half to work through cultivation, warehousing, fulfillment, and distribution issues from licensed producers.
We’ve had a year and a half to work through retail dispensaries and government-owned e-commerce platform problems.
And we’ve had a year and a half to work out product kinks and come up with some incredible unique offerings that can now, finally, actually compete with the black market.
We’ve launched beverages, mints, vapes, and a whole variety of new products that consumers love.
Now we can compete. We’ve got the cultivation, the distribution, the sales channels (both online and retail), and the final step of the equation – products.
These new products are doing more for the consumer, the producers, and the economy than we ever thought.
Canada alone just generated $8.1 billion in recreational, medical, and illegal cannabis sales over the past 12 months.
Finally, over the last two weeks, we’ve seen a significant increase in funding, merger and acquisition (M&A) activity, and a quiet sentiment boost. Strategic mergers and acquisitions (M&As) have been a leading trend in the cannabis industry this year.
Now, there’s a “perfect storm” forming that’s about to show up in stock prices…
“We May Just Have a Perfect Storm on Our Hands”
It’s true stocks haven’t reacted yet to these developments. There are a few reasons for that…
First, there’s the economic impact of COVID-19, which I’m not going to go into today.
Second, it’s now May – which means that it’s time to sell in May and go away for the summer. (Remember that summer is the weakest time of the year but often the best time to buy in the year.)
And lastly, people are still apprehensive. They’ve been burned over the past 14 months from a depressed cannabis market.
So, what happens when you combine an industry that has seen negative returns for 14 months, worked out supply and other issues for 18 months, and is now heading into summer?
Well, we may just have a perfect storm on our hands. One where we can take advantage of underpriced companies at rock-bottom prices that are poised for significant growth.
So here’s what I see happening next…
The smart money starts accumulating these assets at low prices, loading up throughout the summer for a fast return on investment, and ultimately, the return of the cannabis market.
Companies are trading at one to two times revenue! We haven’t seen many companies at these prices before.
Valuations are cheap, market capitalizations are low, and the time to buy could be right around the corner.
My only concern at this point is if the timing is off – if people start to wake up to this industry trend, we don’t run into a typical “summer” year, and instead, we start that move higher much sooner.
But then again, not much is normal for this year. In fact, nothing is normal for this year.
So, my advice is to pick undervalued companies that are ripe with cash and show a near-term path to profitability or profitability now. Then, it’s time to lock and load for the summer.
And with my foolproof three-step strategy, you can learn how to uncover the cannabis-related opportunities that can win you the biggest gains time and time again.
It’s the same system I used to create my own cannabis fortune and I know it can work for you, too. I’m giving you all the details in my Cannabis Investor’s Masterclass. Check out now, before the sector jumps.
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Source: Money Morning