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Marijuana stocks had a rough 2019. The Horizons Marijuana Life Sciences ETF (OTC: HMLSF) fell 39% last year as the S&P 500 rose by 29%. The honeymoon stage for the cannabis industry is long over. And although the outbreak of the coronavirus isn’t going to do the industry any favors this year, the reality is that marijuana stocks were going to face problems in 2020 either way. It’s a year that will separate the pretenders from those that will be around for years, and it’s not going to be an easy one for many companies. Here are some of the things investors can expect to see in 2020.
Layoffs and cost reductions wherever possible
Aurora Cannabis (NYSE: ACB) made headlines in February when it announced that not only would CEO Terry Booth be stepping down, but also that it would be cutting 500 jobs. It also wrote down more than one billion Canadian dollars’ worth of assets, including goodwill, from its balance sheet. It was a big blow for the pot stock, which was once a key rival of industry leader Canopy Growth (NYSE: CGC). And even Canopy Growth had its own round of layoffs, when it announced in early March that it would be letting go of 500 workers and shutting down two of its greenhouses.
These are two of the bigger, more notable cannabis companies in the industry, and these decisions happened before the coronavirus pandemic really took center stage. That means we’ve likely seen just the first wave of job cuts, as companies in the industry are going to face even more pressure to trim their costs as much as they can in what’s likely to be a very difficult year for economies around the world.
Smaller cannabis companies are facing even bigger problems, as many are still in their early growth stages. Raising cash, for instance, is going to be more difficult going forward. To say that investors are bearish on pot stocks would be a gross understatement, as 90% stock losses over the past year aren’t uncommon.
That’s where being self-sufficient and keeping costs down is going to be more important than ever before.
In February, Kentucky-based hemp producer GenCanna filed for bankruptcy . And that may be just the first of many this year for the industry.
A full year of legal edibles and ingestibles in Canada, along with more states in the U.S. legalizing pot, was supposed to make 2020 a stronger year for the cannabis industry. But with the coronavirus pandemic creating job losses and lots of instability in the economy, the recreational market for pot is bound to suffer. And with revenue growth out of the question, the one option left for companies who need to conserve cash is to continue slashing their costs.
Published: April 05, 2020
Founder & Interim Editor of L.A. Cannabis News