Revisiting my 2019 cannabis industry predictions

Around this time last year, I penned some cannabis industry predictions on a sticky note in my office. I was six months into the industry at the time, and only shared the predictions with some of our portfolio companies and partners. With a year and a half under my belt, and in my role leading Canopy Rivers as President & CEO, I’m going to share how my expectations fared against the changes we experienced this past year.

1. Large brand-name CPG company will make headlines in the cannabis space.

These predictions are off to a great start. In October, Kraft Heinz made its first move into the cannabis sector when its VC arm, Evolv Ventures, co-led a US$23 million funding round in cannabis retail software company Flowhub. Don’t be surprised to see more deals like this down the road, either. As the stigma goes away and companies begin to mature, we think the landscape becomes prime for investment—in fact, many of the large CPG companies are already doing their homework.

Result: Correct

2. Industry consolidation will take place among cultivators in North America.

Throughout most of 2019, Canadian LPs remained confident that they could succeed on their own. Rather than consolidation, we saw a lot of posturing from existing players trying to differentiate in the market. The US was the opposite. Until April 2019, more than a half-dozen sizable deals were announced in the US, mostly among vertically integrated MSOs. These M&A deals were expected to be transformative by bolstering the retail and production presence of a number of major US MSOs. However, amidst the capital markets turmoil, many of these deals have been amended or have fallen apart completely.

Result: Correct

3. France and Germany will legalize recreational cannabis. 

The first year of recreational cannabis in Canada may have had me seeing green about how this would progress globally. To date, only a small number of countries have legalized cannabis, in some way, for recreational purposes, and France and Germany are not among them.

The good news is that there has been positive momentum in both countries. In June, France’s senate greenlit a two-year trial for legal medicinal cannabis. Germany’s ruling party has been contemplating a move to legalize adult-use cannabis. Keep an eye out for progress throughout Europe this year.

Result: Incorrect

4. Either Facebook or Google will begin to allow cannabis media on their ad networks. 

And just like that, we’re back on track! While still difficult, Facebook and Google have both taken steps to allow cannabis companies to advertise on their networks. On Facebook, ads for topical hemp products are permissible as long as the ads don’t specifically feature those products (okay, so this is still pretty restrictive). Google approved a trial program that allowed select hemp companies to purchase ads on its platform. This is a positive step for CBD retailers, but I think brands will need some more help from platforms to reach consumers and tell their story.

Result: Correct

5. Supply and distribution issues will continue to plague the Canadian industry, creating inefficiencies in the market. 

I’ll admit, this wasn’t an edgy prediction. After all, which jurisdictions really nailed legalization in their first year? Canadian producers tried to scale as quickly as possible but couldn’t meet consumer demands (remember when the OCS received 100,000 orders in its first 24 hours?). That narrative, though, switched this summer. Producers are now sitting on supply, as the lack of retail has created a barrier between Canadians and many of their favourite products. 

Result: Correct

6. Consolidation of dispensary operations will occur in Oregon. 

I’m going to take a point for this one while also conceding that consolidation hasn’t occurred on the scale I expected. There are some signs, though, that vertically integrated companies are keeping their eyes peeled for acquisitions in the retail space. In May, Massachusetts-based vertically integrated cannabis company Curaleaf announced their intention to acquire Portland-based Cura Partners for CA$1.27 billion. I don’t expect this to be the last time we see a major player enter the Oregon retail market ahead of U.S. federal legalization.

Result: Correct

7. The first IP battle will make headlines. 

In hindsight, this prediction was a bit premature. In my view, IP battles really start to make waves during a period of asymmetric rallies (sustained outperformance by select companies), and when an industry hits maturity (growth rates slow dramatically). Since we didn’t reach these inflection points in our industry in 2019, it’s not surprising that we didn’t see litigation around IP.

Result: Incorrect

8. A billion dollar tobacco deal will be inked with a cannabis company in 2019. 

We didn’t have to wait too long into 2019 for this one to come to fruition. In March, Altria Group Inc. completed a $1.8 billion investment in Toronto-based Cronos Group. The deal gave Altria a 45 per cent voting interest in Cronos and represents big tobacco’s largest move into the cannabis space to date. 

Result: Correct

9. The U.S. federal government policies around cannabinoids will continue to liberalize.

This was one of the first predictions I made when I joined Canopy Rivers. Turns out that just before the calendar flipped to 2019, the U.S. government beat me to it with the passing of the 2018 Farm Bill. And despite continued resistance at the federal level, during 2019 the U.S. government continued taking steps towards a legal framework to regulate cannabinoids, including passage of the 2019 USDA hemp regulations.

Result: Correct

10. Following GW Pharmaceuticals, another pharmaceutical company will make a major move into the cannabis sector. 

I was a bit ahead of myself on this one as well. In June 2018, GW Pharmaceuticals received US FDA approval for their Epidiolex drug, marking the first time a CBD product has been approved for prescription use. Given the number of clinical trials underway, I thought that 2019 would be the year the FDA would gear up for CBD-related pharmaceutical formulations. Although there was little movement, 2020 is looking better for this prediction, with the FDA focusing more on CBD and ~800 clinical trials underway for cannabis/hemp related products. 

Result: Incorrect

My final score was 7/10, although I gave myself some points where momentum was gained. Keep an eye out for my 2020 predictions being released in January 2020. Not dissimilar from my predictions this year, I think 2020 will be a breakthrough year for the cannabis industry.

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This is not an offer to sell or a recommendation to trade in any securities. This information is provided as of the date hereof. This document contains data obtained from third parties that Canopy Rivers has not independently verified. This document also contains forward-looking information within the meaning of Canadian securities law, which is based on certain assumptions. While management believes these assumptions are reasonable based on information available as of the current date, they may prove to be incorrect. Many assumptions are based on factors outside of Canopy Rivers’ control and actual results may differ materially from current expectations. Forward-looking information involves risks, including, but not limited to, the risk factors set out in Canopy Rivers’ most recent Management’s Discussion and Analysis and Annual Information Form. You should not place undue reliance on forward-looking information. Except as required by applicable law, Canopy Rivers assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances.