While industry players have long awaited tomorrow’s legalization of recreation marijuana, market observers advised the sector to temper its expectations of an environment thriving with competition and vibrant start-ups.
The next few months and quarters will prove to be the real acid test, as investors will become more exacting in their standards with winners and losers becoming readily apparent.
“These have all been concept stocks and they’re going to actually have to be real companies in another few months, which I think a lot of guys are terrified about,” Purpose Marijuana Opportunities Fund manager Greg Taylor told Bloomberg.
Taylor noted that companies trading at “more realistic valuations” like CannTrust Holdings Inc., Hexo Corp. and Organigram Holdings Inc. will be the most reliable bets in such a setting.
Low production costs are also a formula for success, he added.
“It’s a non-starter if they’re not growing at less than $1 a gram.”
Read more: Is the weed segment overvalued at the moment?
CannTrust chairman Eric Paul has a gloomier outlook, predicting that there might be no more than half a dozen major players by October 2021.
The rest “are going to be bankrupt or out of business because their business models don’t work,” Paul explained. “This industry is far more brutal than most people understand.”
This wave of extinction will be unavoidable as many investments will simply be unable to deliver, Canopy Growth Corp. CEO Bruce Linton said.
“I get asked all the time, is there going to be consolidation? I think there’s going to be disintegration,” Linton stated. “Disintegration will happen when people make promises at valuations they can’t possibly meet.”