Cannabis Investment Trends for 2020

Cannabis is going through growing pains as an industry. Inhibited by its legal status in the US, and struggling to stabilize its supply and distribution chain into reasonable bounds, there are impediments to its immediate profitability. With that said, we believe the general prognosis is still favorable. The industry’s relative immaturity means that evolution is inevitable and desirable, as it will help establish industry leaders. We believe that the Cannabis Growth Fund is well positioned as an actively-managed mutual fund to turn its focus onto leading companies that are making the decisions that, in our view, will lead to long-term potential growth. With that in mind, we have made some predictions about cannabis investment trends for 2020.

What’s Hot in the Industry

Charlotte’s Web (CWBHF) currently possesses the largest share of the cannabis-derived cannabidiol (CBD) market, and its CBD products can now be found in over 1,300 Kroger locations, as well as another 7,000 retail premises. This represents its first household retail partnership and fifth national retail distribution deal. It is ending 2019 having more than doubled the number of retailers its goods are distributed to, and almost tripled the amount of hemp it produces. CBD products are notable for having high margins, so this could be one to watch. Another company that is in a favorable position which investors are taking note of is Acreage Holdings (ACRGF). Acreage has a substantial production, processing, and sales presence across 20 states, and is in the top 5 for retail licenses held by dispensary operators. If the federal government finally makes a move on legalizing cannabis, we believe that Acreage will be well-positioned to capitalize. On a somewhat smaller scale, Trulieve (TCNNF) is focusing mainly on Florida and grabbed significant market share there, with an expected spike in sales to follow in 2020. Its expansion ambitions, California, Massachusetts, and Connecticut, are themselves potential big-money plays, with California the country’s biggest cannabis market, and Massachusetts another potential high-value market for cannabis products.

Trends That We Believe Will Transform the Cannabis and CBD Industry

One trend that shows no sign of reversing is the improving image of the industry. The Silent Generation (aged 74-91) is the only age demographic with a majority (61 percent) that disapproves of marijuana legalization, and they are outnumbered almost 3-to-1 by Baby Boomers (54% in favor of legalization) and millennials (74% in favor). Activists are at work to push legalization through across much of the Northeast US, including:
  • Minnesota
  • New Hampshire
  • New Jersey
  • New York
  • Rhode Island
  • Vermont (which has already legalized possession and home cultivation)
Illinois and Michigan will start permitting retail premises to sell recreational marijuana in early 2020, meaning that another 22.75 million Americans will have easy access to recreational marijuana. Nielsen estimated that $8 billion of legalized cannabis sales (including hemp-derived CBD) happened in 2018: with newer markets opening and the likelihood of other states following suit, they predict sales will climb to $41 billion by 2025, with 75% of the US adult population having consistent access to legal marijuana. New Mexico is another state that could see legalization in 2020. Texas and Pennsylvania are both potential states that could see a run at decriminalization in 2020 or shortly thereafter. Approximately two-thirds of the country as a whole are in favor of marijuana legalization at a federal level. The only generation that is majority opposed is the Silent Generation, which hints at a marked drop-off in opposition over the next three to five years, as even the youngest members of that age group exceed the US average lifespan. As legalization appears to become more and more of a vote-winner for politicians, we believe that mainstream US politicians are sure to take note and set in motion a chain of legalization efforts that could swing the United Nations itself. The Single Convention on Narcotic Drugs of 1961, by which the UN requires its member states to enforce laws against cannabis cultivation, has already been questioned by the World Health Organization, as they asserted that CBD has no established public health problems in a recent study. The 2020 election could be the one that decides the issue, not only for the US, but for the free world. Another trend that is already taking effect is the massive infusion of new cannabis products hitting the market. Beverages in particular are going to be a huge part of the new market, with manufacturers like Molson-Coors and even Coca-Cola at work on cannabis-infused or CBD drinks. Edible products containing CBD are also likely to expand their market share as companies outside of the industry proper release their own edibles. Currently around 13% of cannabis purchases are edibles. While growth is expected, marijuana flower is likely to retain its position as the most popular cannabis product or cannabis-derived product for some time at least. Additional trends include those regarding the demographics of dispensary customers. Customers are likely to diversify in terms of age, introducing more customers of an advanced age, in terms of gender, adding more women to dispensary wait lines, and in terms of purchase power, with greater variance in the amount of money people spend at dispensaries. More breakthroughs and developments in medical marijuana are likely to be made: CBD’s antibiotic effects are currently being explored. The potential of a topical CBD antibiotic cream could be seen in 2020 or later.

Cannabis 2.0

The industry is talking a lot about ‘Cannabis 2.0’, the unofficial name given for the debut of Canada’s new legalization guidance on recreational consumption of edibles, concentrates, and topicals containing cannabis. CGF believes that 2.0’s rollout will impact the overall growth of many of Canada’s major licensed producers. The new products they will be introducing are expected to offer much higher margins and could be a significant boon to company’s future earnings. It is possible, however, that the general backlash against vaping products will negatively impact cannabis companies. South of the Canadian border, eyes are on the Secure and Fair Enforcement (SAFE) Banking Act, which passed the House of Representatives on a strongly bipartisan vote in September 2019 and awaits passage by the Senate and the White House. If successful, it would offer much-needed legal protections to financial institutions that provide financial services to cannabis businesses. The Federal Reserve would be called off from threatening institutions that deal with the cannabis industry. Even if the bill is sat on or dismissed by the Senate, the fact that the House approved it is a watershed moment in the cannabis industry’s maturation.

Cannabis Growth Funds

Cannabis stocks are at present volatile. The industry has, we believe, immense potential, but with so much in flux it can be difficult for casual investors to make sense of things. That’s why Cannabis Growth Funds offers its mutual fund. If you are interested in investing with Cannabis Growth Funds, you have many options for how to pursue that: directly, or through your financial advisor.

OF SPECIAL NOTE

Statements, estimates and forecasts are subject to significant legal, business, economic, and competitive uncertainties, including competition, limited access to bank services, litigation, enforcement actions, and the receipt of government authorizations. This includes differences in, among other things, laws, regulations and guidelines relating to the manufacture, transportation, and storage of cannabis, and the conduct of operations, which vary among the U.S. federal government, various states, and foreign jurisdictions. There can no assurance that such estimates and/or forecasts will be realized, and these are not indicative of future investment performance. Historical data is not indicative of future performance.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained from 888.885.0588. Please read the prospectus carefully before you invest.

Investing involves risk, including possible loss of principal. The cannabis industry is subject to rapidly evolving laws, rules and regulations, and increasing competition which may cause such companies to change business model, shrink or suddenly close. These may limit access to banks, and create significant burdens on company resources due to litigation, enforcement actions, receipt of necessary permits and authorizations to engage in medical cannabis research or to otherwise cultivate, possess or distribute cannabis. Possession and use of cannabis is illegal under federal and certain states’ laws, which may negatively impact the value of Fund investments. Where legalized by states, cannabis possession and use remains a violation of federal law. The companies in which the Fund invests are subject to various laws and regulations relating to the manufacture, management, transportation, storage and disposal of cannabis, including health and safety, conduct of operations, and environmental protection. Even if a company’s operations are permitted under current law, they may not be permitted in the future, and a company may not be able to continue operations in its current location. Controlled substance legislation differs significantly between countries and may limit a company’s ability to sell products.

Foreign investing involves social and political instability, market illiquidity, exchange-rate fluctuation, high volatility and limited regulation risks. Emerging markets involve different and greater risks, as they are smaller, less liquid and more volatile than more developed countries. Investments made in small, mid-capitalization and micro-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. Fund investments will be concentrated in an industry or group of industries, and the value of Fund shares may rise and fall more than more diversified funds. Purchasing and writing put and call options entails greater than ordinary investment risks. Options ownership involves the payment of premiums, which may negatively impact Fund performance. Please see the prospectus for details of these and other risks. Distributed by IMST Distributors, LLC.