2023 will be another year of uncertainty for the cannabis industry, with little progress in terms of legal transparency or market growth. The sector has been unable to make meaningful progress as markets in both the US and Canada are in a holding pattern, waiting for a breakthrough. This year has been frustrating for many in the space community, but there are hopes that 2024 will bring some much-needed relief.
In the US market, operators are looking forward to enacting policies that will help businesses deal with harsh financial realities. The SAFER Banking Act, a bill aimed at bailing out the U.S. cannabis industry by giving businesses more access to banks and credit unions, faces a roadblock in the form of Republican opposition. Chuck Schumer has worked tirelessly to garner bipartisan support, but so far his efforts have fallen short.
This legal purgatory has hindered growth and investment in the cannabis sector, leaving many wondering when, or even if, the industry will finally be able to unleash its true potential. I think so.
In Canada, the cannabis industry faces several challenges in 2023, including oversupply, intense competition, and regulatory hurdles. Many businesses are struggling to make a profit, and some have been forced to close. Additionally, some companies are resorting to drastic cost-cutting measures, including layoffs, production cuts, and facility closures.
Here, Investing News Network (INN) takes a look back at the key cannabis market events of 2023.
Experts see a transition to stabilization
In an interview with INN, Rami El-Sheikh, Corporate Strategy Partner at EY Parthenon, reflected on the cannabis trends witnessed in 2023 and admitted that he does not see much difference compared to past years.
“Frankly, (the market) is more or less the same,” he said in the conversation. “In terms of profitability (and) growth, 2023 was clearly more intense than 2022, but many companies continue to underperform. They burn less cash than they used to. However, it is not yet financially sustainable at this stage and remains dependent on previously raised funds to maintain financial operations.”
He noted that carriers will continue to need to take strategic cost-cutting measures, an unfortunate reality in a market crowded with too many players. “(Companies) were very active in their cost-cutting programs in 2022 and 2023, so their performance has not deteriorated that much,” El-Sheikh said. “Companies have done well only because they have cut costs. They have sold a lot of non-core assets, but it is not financially sustainable. A lot of things that should have been taken out of the market There is still an oversupply as most players have not withdrawn yet.
Nawan Butt observed small changes that indicate the Canadian market is maturing.
“In a nutshell, the rightness of Canadian industry is the big trend this year,” a portfolio manager at Purpose Investments explained to INN. “Infrastructure was created in a kind of bolt-from-the-blue mentality… (and) producers were way too far ahead in terms of predicting demand. Now they are starting to reach a scale where they reach an equilibrium of supply and demand. ”
Bhatt continued: “Investors are also finally starting to properly gauge expectations. What we're seeing is that as the outlook becomes more stable, valuations are also becoming more stable. So investors are starting to understand the rationalization, and the stabilization of valuations is a sign of that.”
The market appears to have weeded out players who expected quick success, leaving behind a patient group that understands the realities of how new markets, such as the cannabis industry, develop and grow. Masu.
Meanwhile, some of the industry's most successful operators are choosing to diversify their portfolios or expand into new markets while awaiting new legislation. Tilray Brands (NASDAQ:TLRY, TSX:TLRY) and Canopy Growth (TSX:WEED, NASDAQ:CGC) are two of the largest cannabis companies in North America, with a combined market capitalization of 2 billion as of December 7th. It exceeds the US dollar. Both companies operate in multiple countries and made moves last year to capitalize on Europe's growing medical cannabis market.
Tilray has had a strong presence in Europe for many years, and as medical cannabis legalization spreads across Europe in 2023, that expansion included expanded distribution in Italy and the Czech Republic. Meanwhile, Canopy Growth is focusing on Germany's medical cannabis market, announcing on September 6 that it will rebrand its medical cannabis services in the country from Spectrum Therapeutics to the aptly named Canopy Medical. In July, Canopy Growth announced its GMP-certified cannabis processing facility in EU-Portugal. All drugs have been decriminalized in the country since 2001, but only medical marijuana is legally sold.
Attitudes toward cannabis continue to change
Headlines this year suggested that the U.S. federal government may take steps to support cannabis reform. However, another year passed without any concrete results despite further talks. Unfortunately, those in the cannabis industry seem to have become accustomed to false hope.
Since the U.S. Department of Health and Human Services (HHS) recommended that the Drug Enforcement Administration (DEA) reschedule marijuana from a Schedule I drug to a Schedule III drug, market participants are relying on the word of lawmakers. Though he remains positive, Butt has seen a rise in hesitancy. Last summer.
“This is an unprecedented timeline for HHS to submit recommendations within 12 months,” he said. “Historically, for similar actions, it took a very long time to make your case. Being able to get in (to the DEA) this quickly means that we have to take advantage of the body of work available to us. , which means the DEA can review it fairly quickly. (This) shows that there is no potential for abuse of cannabis in the efficacy or safety of the cannabis or in the planned infrastructure. ”
When HHS issued its official advisory on August 30, several cannabis companies' stock prices rose. For example, Cronos Group (NASDAQ:CRON, TSX:CRON) gained 17.82 percent on the Nasdaq market between August 29th market close and August 31st, while Canopy Growth rose 17.82% on the same exchange. recorded an increase of 42.29%. The company's stock price continued to rise until mid-September, reaching a third-quarter high. Although it decreased in late September, it is still increasing compared to a month ago.
On September 27, the SAFER Banking Act was approved by the Senate Banking Committee, causing another short bump. But in the days and weeks after both incidents, with no announcement from the DEA and no date set for a Senate vote, cannabis stocks fell to near their pre-recommendation prices.
“The HHS recommendation to change the cannabis sales schedule was a very positive initial response from the market, but much of it is starting to be discounted again by the market,” Butt said.
Despite the bill moving slowly and hearing the same issues debated for years, some remain optimistic. “Hopefully we'll hear back from (the DEA) in the next few months or months,” he said.
Key points for investors
Despite growing public support, the U.S. cannabis industry is hampered in 2023 by a slow process and Republican-led opposition to reform. In Canada, there are signs that the market is maturing, but businesses continue to rely on cost-cutting strategies to survive. Overall, the cannabis industry remains in a state of flux, but it is clear that the sector is growing and evolving.
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Securities Disclosure: I, Meegen Seeter, have no direct investment interest in any companies mentioned in this article.
Editorial Disclosure: Investing News Network does not guarantee the accuracy or completeness of the information reported in interviews conducted. The opinions expressed in these interviews do not reflect the opinions of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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