The North American cannabis market is going through growing pains and companies focused on making profits from the new green gold experienced major losses. Meanwhile, in Europe, the emerging cannabis sector opens up new opportunities of expansion to companies like World High Life PLC (NEX:LIFE).
It is time for a fresh look at the cannabis sector because while equity valuations and investor sentiment change, the cannabis market itself remains attractive.
Canopy Growth (TSE:WEED) is the blue-chip cannabis market leader and the company that was the first to secure significant capital, when Constellation Brands Inc. (NYSE:STZ) acquired its first stake in October 2017. In the days prior to the legalization of cannabis in Canada, Canopy shares reached a record high of $55.45 (CA$73.75) on October 15, 2018. Since then, shares have fallen by more than 73% and the largest losses have been recorded in the last six months.
At the end of April, the stock market still valued the cannabis producer at $18 billion (CA$24 billion). Currently, this value has fallen to less than $5.2 billion (CA$7 billion), because the company’s second quarter results, released last week, confirmed the doubts: Canopy’s sales were down 15% compared to the last three months.
In addition to Canopy, Aphria Inc.(APHA:NYSE) shares have fallen 59% since April and Aurora Cannabis Inc.(TSE:ACB) shares have fallen 76% since March. The speculative bubble has burst. In general, the sector is struggling with dwindling liquid assets, expensive financing and shareholder dilution.
However, some stocks showed a nice upswing on Tuesday. The Horizons Marijuana Life Sciences ETF (TSE:HMMJ), an exchange-traded fund holding dozens of cannabis stocks, gained 4.9%, suggesting that some investors are once again seeing opportunities in stocks that have fallen to a two-year low. Canopy stocks closed at $20.31, a gain of $1.53 or 8.2%.
Canopy’s trading volume in the third quarter was only 173 million shares, a significant drop from 2018, when quarterly trading volume easily exceeded 500 million shares. This suggests that demoralized private investors have lost interest in the stock. The situation is different for institutional investors. A look at Canopy’s 20 largest investors shows that these funds have increased their holdings by more than five million shares on a net basis since the end of September.
The initial attraction for the sector was that these companies were providing a newly legalized product that would ensure strong growth in the future. Canopy’s disappointing quarterly results suggest that the strong growth is delayed but not dead – and Canopy is in a good position to outperform its competitors during this period of uncertainty.
After all, its balance sheet still shows $1.5 billion (CA$2 billion) in cash, which could be the most valuable asset, as many companies in the cannabis sector suffer from a lack of capital. Maybe that’s why institutional investors are increasing their stake in Canopy.
Europe seems to be an attractive choice for cannabis companies
While the growing cannabis market in North America struggles between massive stock prices falls and cannabis oversupply, the emerging European cannabis market draws more and more investors. These investors are aware of the huge potential that the cannabis markets from over the ocean have and don’t want to miss this exciting new opportunity.
The new frontier market in Europe is likely to become the most important cannabis market in the world within a few years. By 2029, the medical cannabis market in Europe and the UK is estimated to be worth $64.2 billion (€58 billion).
World High Life PLC (NEX:LIFE), a UK-based company, is one of the few cannabis investment companies that know how to take full advantage of the many possibilities that have arisen, as more European countries are changing their policies towards cannabis.
The cannabis industry in the UK and Europe is clearly evolving and World High Life comes with a remarkable plan of becoming the leading player in the global medical cannabis market.
WHL identifies and acquires cannabis companies from different European countries and the UK. This way, the company is creating a top portfolio of companies that have the potential to become key players in the cannabis industry. By investing in a single stock, investors have access to all the stocks in World High Life’s portfolio.
On its way to becoming the most important player in the burgeoning European cannabis market, World High Life announced on October 18 that it has completed the process of acquiring UK’s leading cannabis company in the medical sector, Love Hemp.
Europe is set to become the most valuable legal cannabis market in the world. The new frontier market offers a fresh chance for investors and companies that missed out when cannabis was legalized in Canada and profits reached the highest peaks.