Harvesting Cannabis During Covid

Cannabis 2.0 Arrives as Survivors Eye Growth: Cannabis Weekly

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An industry all but left for dead this spring is suddenly in the midst of a revival.

This past week, Martha Stewart launched a line of CBD gummies with Canopy Growth Corp. Hemptown USA, a Portland, Oregon-based grower of cannabinoid compound CBG, released its plan to go public. And Cronos Group Inc., the cannabis company partly owned by Marlboro-maker Altria Group Inc., named a new chief executive who sits on the board of about as family-friendly a brand there is: Campbell Soup.

Not bad for an emerging cannabis sector that many fearful investors gave up on in March and April, as financing for the weakest companies was cut off. Cannabis stocks lost about a quarter of their value in the first half of 2020, compounding a 50% drop the year before.

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Then something unexpected happened: As the coronavirus shut down many businesses, dispensaries were declared essential in many states, and some homebound consumers binged in quarantine. Stocks began to turn around, and those companies who’ve made it through are enjoying what feels like a new stage, which some CEOs are calling “Cannabis 2.0.” That refers to both the new range of innovative products shaking up the industry -- CBD oils, gummies and beverages that appeal to a wider range of consumers -- but also to the fiscal maturity that’s more clearly separating winners from laggards.

During Cannabis 1.0, some companies lacked “financial discipline,” said Ayr Strategies Inc.’s CEO Jon Sandelman. Excited investors couldn’t always tell the difference.

There’s now a recognition that companies are dispersing, and the capital is getting more concentrated in the better players, he said in an interview. “What always happens in 2.0 is the market gets smarter,” he said.

Of course, the “Cannabis 2.0” catchphrase shows how fine a line most of these companies still walk. Take Canopy, for example. Its launch of the CBD gummies with celebrity Stewart is part of a plan to build its name and footprint in advance of expected U.S. legalization, which it anticipates by 2022. (Who would have thought a homemaking icon known for her No-Bake Cheesecake recipe would be a Trojan horse for a drug that’s been illegal for the past 83 years?)

At the same time, the company is still far from profitable. Canopy’s finance chief this past week asked investors benchmarking the company against peers to remember that “part of Canopy’s current loss” is because of “investing ahead of revenue” in the U.S. That’s a strategic call, CFO Mike Lee said, based on projections that the U.S. will be a $60 billion market for THC, and within the next few years, a $10 billion market for CBD.

And so not only is new optimism afoot; the old optimism never fully went away. As the new steward of this weekly newsletter, I’m excited to write more about a sector with so much innovation -- and so much risk. And I’m eager to hear the tips, big ideas and questions of a savvy audience that has stuck around for the next iteration.

So drop me a line, or even better, give me a call. We won’t be bumping into each other at a conference any time soon.

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