The excitement over entering into a new line of business can, if you are smart and lucky, bring wealth your way. That is the allure. When the allure is in the arena many entities are created and the fun begins. Legalized cannabis is in that spot today. Is it new? Well sort of. Legal well, certainly in Canada and sort of legal in the United States, but Cannabis has been grown for centuries.
This current environment has, at least existed for a while, but we are in this grey world of legality. Many companies have set up as Canadian firms as a result. Lots of names live as public companies and they are trading shares. New companies appear and others disappear.
So when will Canadian Cannabis make money? That is a fair question. In the life span of a company having access to cash is very important. If this cash is used wisely it will fund smart growth and it is prudent. There will be casualties and, if you have the cash, smart bargains will emerge for the taking as a result. Smart executives do not risk their company on any one deal. Business schools teach lessons on why this is always the smart thing to do. Should a “deal” not work out there needs to be enough cash on the books to survive those poor decisions. If it works great, then building on the asset is now in your hands. It’s all a process that takes time, but profit can occur.
Cannabis stocks still have some ground to make up though. There will usually be a drop in the share price after an initial public share offering (“IP”). There will likely be those investors that see some profit early and they will take that opportunity to crystallize that profit. All of this profit taking weighs down share value.
This seems to be the case in every business no matter the industry. Agriculture, manufacturing, resources all experience this.
After the excitement of surviving the IP, or the success of the first few deals, comes the hard work of building the business in earnest. When profits start to emerge then, the blood in the water starts to do its thing. Costs begin to increase. Pressure mounts.
Taxes must be paid and local taxes will rise. Jurisdictions start with a low tax base at the start but will increase their tax burden as the business begins to establish itself. The threat of pulling stakes and moving to a friendly new home puts the wolves at bay for a while. Some give and take naturally ensues or addresses change.
Some of the more recent issues center around diversification of the final product type. Diversification into edibles or drinks or food additives are seen now.
Canada is beginning to loosen restrictions on edibles. Companies are preparing for this event and may begin to narrow their focus. We can expect this to occur.
CBD is being added to everything from drinks to cosmetic products. Producing the purest CBD is a goal.
Each of those areas offer growth and with growth comes the chance of profits.
A nagging problem though is getting product from producers to consumer. Regulations to protect the public take some time to be ironed out, especially crossing boundaries of jurisdictions. Government despises a porous “tax net” too. This issue has plagued the system for some time now and has ground timing down. There certainly is incentive there for all parties and it will be resolved.
So yes, there is profits somewhere over the rainbow, but it can be a rough ride getting over there.
