The Next Big Thing for Pot Stocks Is Already Here

Looking for the Best Pot Stocks for 2020? Read This

The bears can say whatever they want, but they cannot deny the fact that many cannabis companies have been growing their business at an astonishing pace. If you look into the earnings reports of the top pot stocks, you’d see that double- and even triple-digit year-over-year sales increases are not uncommon.

The best part is, there is one thing that could take many pot companies to a whole new level. And that catalyst has already arrived.

I’m talking about cannabis-derivative products—such as edibles, vapes, topicals, and cannabis-infused beverages—which are now legal in Canada.

Some of you might be wondering, didn’t Canada legalize recreational pot in October 2018? Why is this anything new for pot stocks?

Well, the October 2018 legalization only applied to fresh cannabis, dried cannabis, cannabis plants, cannabis plant seeds, and cannabis oil.

On October 17, 2019, however, Canada also legalized pot derivatives. But in most parts of the country, those products didn’t hit store shelves until mid-December.

Canadians are calling this second wave of legalization “Cannabis 2.0” because it represents a new era for the marijuana industry.

Many cannabis companies are still working on their marijuana-derivative product rollouts. So this is, indeed, a very new thing in the legal market.

For investors who are searching for the best pot stocks in 2020, Cannabis 2.0 is a major catalyst to consider.

Of course, legal pot companies have been around before the legalization of cannabis derivatives, and some of them were already churning out very impressive growth rates. Why would cannabis edibles, vapes, and beverages be considered the next big thing?

Well, it all lies in the profitability that these products can bring.

Why Cannabis 2.0 Could Mean a Fortune to Pot Companies & Investors

While there are different strains of cannabis that produce different effects, for the most part, dried cannabis flower is becoming more and more like a commodity.

That means it’s getting harder for marijuana companies to charge a premium over the market price for their production.

Some companies that focus on growing organic marijuana are able to earn an organic premium, but for most players in the industry, their fate is often dictated by the prevailing market price of marijuana.

Cannabis derivatives, on the other hand, are value-added products that enable pot companies to generate higher margins than with dried flower.

Moreover, the new product forms may make it easier for pot companies to differentiate their products from their competitors’ offerings.

And then there’s the possibility of attracting new cannabis consumers.

That is, the new product mixes may allow cannabis companies to reach consumers who were not comfortable with the consumption methods that were previously available.

The best part is what Cannabis 2.0 could do to these pot companies’ bottom lines.

You see, while many companies in the industry already have solid top-line growth rates, most are yet to turn a profit. With higher margins expected from cannabis-derivative products, these companies might be able to speed up the process of becoming profitable.

Of course, because we have just entered Cannabis 2.0, it’s hard to say just how much these new products will contribute to pot companies’ financials.

But the opportunity is likely going to be huge.

According to Deloitte, the market for edibles and other marijuana-derivative products in Canada is estimated to be worth CA$2.7 billion annually. (Source: “Deloitte estimates next round of cannabis legalization will create a new $2.7-billion market in Canada,” Deloitte, June 3, 2019.)

Analyst Take

However you look at it, Cannabis 2.0 in Canada is good news for the marijuana industry.

Keep in mind, though, that Canada is not the only market for pot. In the U.S., the changing regulatory environment could also produce some big winners.

But if you’re looking for the catalyst that’s most likely to boost the legal marijuana industry, Cannabis 2.0 could be the best bet for 2020.

And since shares of many Canadian pot companies trade in the U.S. either on U.S. stock exchanges or over the counter, it’s quite convenient for American investors to get a piece of the action.