Cannabis Businesses Essential in Stressful Times

If you’ve been following the cannabis industry, and particularly the investment climate around that industry, at all over the last couple of years, you know that times have been tough for almost a year now. The reasons are numerous, including this dynamic – overvaluation based on aggressive models of large profits, followed by the grim reality that the industry may take a while to hit full stride while governments and companies figure things out. One might think that pandemic-related stresses might cause the industry to collapse completely, but the opposite may be proving true. It appears that cannabis, as a consumer product, could be somewhat recession-proof.

Sales Staying Strong

Two recent articles, one from Marijuana Business Daily and the other from Forbes, do a pretty good job of outlining the situation. States across the nation have determined that cannabis businesses are “essential” and can stay open under stay-at-home restrictions. These decisions are generally driven by concerns that medical patients have access to medicine. But on the recreational side of the market, there are parallels to liquor stores that have also been deemed “essential” and allowed to remain open.

The Marijuana Business Daily article digs into levels of alcohol sales during the last recession in 2007 – 2009. They remained steady and even exhibited some growth, a raging success when compared to the drop in sales experienced by many other industries at the time. People need their stress relief and will find a way to get it, even in the most trying times.

The same seems to be holding true to this point for cannabis sales in the time of Covid-19. Bloomberg summarized some of the figures, showing big jumps in retail cannabis purchases in California, Colorado, and Washington state in mid-March as coronavirus cases (and restrictions) skyrocketed. And cannabis could uniquely benefit from people staying at home. Bill Kirk, an analyst at MKM Partners, said, “The vice of choice when alone is cannabis. The vice of choice in large groups or with new people is alcohol. This doesn’t solve capital markets issues facing some companies, but it does bode well for the industry’s inventory problem. With facilities closing and demand increasing, inventory that has sat idly is starting to find a home.”

Investment Outlook

Investors looking for companies positioned in the cannabis industry could benefit from these dynamics. First, valuations have already been slashed significantly, so there could be some upside just from that aspect alone. Back that up with the idea that cannabis sales remain strong and could even increase through recessions and stressful times, and suddenly investing in cannabis is more appealing than it was even two months ago.

Unfortunately, due to fragmented regulations in the United States and to problems with the retail rollout in Canada, it’s not like there are recognized brand leaders on which to hang your hat. There are no Cokes or Bacardis or, dare we say it, Coronas out there ahead of the retail brand pack. Instead, it might be wise to look at the structure of the cannabis industry in its infancy and find firms that are active in key areas. One interesting company with a focus on laboratory testing, genetics, and breeding is Digipath, Inc. (OTCQB: DIGP).

Digipath, through its subsidiary Digipath Labs, Inc., offers full service cannabis testing out of its Las Vegas, Nevada location. The ISO certified lab is, of course, licensed by the state of Nevada and conducts all of the wide variety of tests necessary to comply with state law. Testing and certification of products is mandated in any legal cannabis environment, an essential service that supports and informs the end-user market. Digipath recently announced a 50% increase in cannabis sample processing for the month of January, 2020 compared to January, 2019, and is expanding both its space and instrumentation to meet the rising demand.

Digipath very recently created another promising division of the company with its acquisition of VSSL Enterprises, a cannabis genetics and cultivation consulting outfit based in Kelowna, BC. The two companies had been working together on the development of a mobile genetic testing system capable of distinguishing between hemp and cannabis, a technology that would seem immensely valuable in light of the regulatory differences between how the two plants are treated. During the course of the collaboration obvious synergies between the companies led to the acquisition.

The two founders of VSSL, Kyle Remenda and Philippe Henry, Ph.D., have joined Digipath’s executive team, with Kyle Remenda assuming the role of CEO and Philippe Henry becoming Chief Technology Officer. VSSL came with a Research and Development license issued by Health Canada, allowing the company to cultivate cannabis at three field sites along with a lab site that utilizes tissue culture techniques. The goal is to develop novel cannabis genetics as well as to identify and stabilize existing desired genetic traits. VSSL was also recently awarded a laboratory testing license that would allow it to test on a national basis in Canada.

The marriage between the two companies and their mutual commitment to the science underlying the industry makes a lot of sense. It could be argued that the advancement of cannabis science is one of the most crucial issues facing the industry as it looks to develop and sell products that safely offer both medical and recreational benefits under increasing regulatory scrutiny.

The Upshot

The genetics of agricultural products have been studied and refined for centuries. Food safety is an ongoing concern for both producers and consumers. The cannabis industry is in essence playing catch up following decades of prohibition on not only the plant itself but also research into the plant. Companies like Digipath, offering scientific services that assure product safety while also helping companies maximize production and formulate effective products, sit in a compelling position.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.