U.S. Investing

Cannabis Corner: Growth Through Consolidation

While I prefer smaller and more innovative names, it’s nice to see Big Cannabis bounce back this week. After all, while the stocks don’t always make sense, the companies themselves are taking huge strides.

This was always a profoundly fragmented industry dominated by cottage producers and do-it-yourself retail models. In many parts of the country, the “green gold rush” still looks a lot like the Wild West.

But the relatively large publicly traded cultivators have spent the last few years ruthlessly absorbing competitors. They aren’t innovators so much as consolidators.

You know I’ve wanted to see real signs of consolidation before stocks like Canopy Growth Corp. (NASDAQ:CGC) and Aurora Cannabis Corp. (NYSE:ACB) make sense in my portfolio.

Without discipline, raw plant prices will stay weak. Discipline is impossible without weak producers giving up.

And until we see that happen, supply is going to keep growing faster than demand. That’s not good for investors.

With that in mind, it’s nice to see the giants on track to expand their share of a rapidly maturing overall cannabis market. ACB is looking for 50% higher sales this year. CGC might raise its top line 70%.

When the giants in any industry keep growing at that rate, clarity is on the way. Meanwhile, the disruptors are where the real action is.

I’ve got triple-digit-percentage cannabis fun in my IPO Edge portfolio and more on the way. This is an entry point, not the end of the world.

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. The Financial Times describes Ms. Kramer as “A one-woman financial investment powerhouse” and The Economist distinguishes her as “one of the best-known investors in America”. Ms. Kramer is often quoted in publications such as the Wall Street Journal, New York Post, Bloomberg, and Reuters. She is a frequent guest commentator on CNBC, CBS, Fox News and Bloomberg, providing investment insight and economic analysis. Ms. Kramer was an analyst and investment banker at Morgan Stanley and Lehman Brothers. Ms. Kramer founded and ran a long-short hedge fund and has been chief investment officer overseeing debt and equity portfolios. Since 2010, Ms. Kramer’s financial publications have provided stock analysis and investment advice to her subscribers. Her products include GameChangers, Value Authority, High Octane Trader, Triple-Digit Trader, 2-Day Trader, IPO Edge and Inner Circle. Ms. Kramer, a Certified Fraud Examiner, has also testified as an expert in investment suitability, risk management, compliance, executive compensation, and corporate governance. Ms. Kramer received her MBA from the Wharton School at the University of Pennsylvania and her BA with honors from Wellesley College. Ms. Kramer has provided testimony regarding investment policy to the U.S. Senate and is a frequent speaker on the markets, portfolio management and securities fraud and compliance. Ms. Kramer is also the author of “Ahead of the Curve” (Simon & Schuster 2007) and “The Little Book of Big Profits from Small Stocks” (Wiley 2012).