The cannabis industry is facing a potential decline but the CBD sector and companies like West Coast Ventures Corp. (OTC: WCVC) offers cannabis investors some hope
Unrealistic investor expectations of the potential profits resulting from the legalization of marijuana in Canada and the continued inability of producers to meet demand partly explain the decline in the value of the shares of some cannabis producers, according to an industry expert. Despite this the CBD sector offers investors some potential relief.
West Coast Ventures Corp. (OTC: WCVC) is a prime example of an innovative CBD company that offers investors some hope. WCVC represents America’s first CBD restaurant stock and has seen an incredibly strong quarter 2 over the course of this year. The company’s success is thanks to its innovative approach to CBD. It sells Illegal Brands CBD water and Sachets across all of its Illegal Burger and Illegal pizza locations which has proven wildly popular.
This is in stark contrast to the “traditional” cannabis industry. Last October, before marijuana became legal in Canada, the value of Tilray’s shares, a Nanaimo company, was estimated at nearly $200 per share. Since then, it has dropped to less than $30.
For its part, the value of the shares of Canopy Growth, another producer, has fallen by 50% since April.
Michael Rodenburgh, head of cannabis market strategies at the Ipsos research group, explains that investors in the cannabis industry had unrealistic expectations about the future of this market before the legalization of this drug in Canada.
“Everyone expected an exponential increase in sales, but it didn’t materialize because people didn’t start smoking as frequently as expected,” says the expert.
Indeed, according to Ipsos data, the number of Canadians who smoke cannabis at least once a month has increased from 13% before legalization to only 16% to 18% one year after legalization.
Insufficient supply
Rodenburgh adds that producers’ inability to meet demand across the country is part of the reason for disappointing sales.
There is only one provincial cannabis store in British Columbia and a few private stores. All of Ontario is served by 75 stores. “Consumers can’t find and buy the products they want,” Rodenburgh says.
According to Ipsos, half of the cannabis consumed in Canada continues to be purchased on the illegal market. In addition, consumers who buy products in licensed stores rarely remember the cannabis brand or the company that manufactures it, which means that producers have difficulty establishing a loyal customer base.
Rodenburgh expects that the legalization of edible cannabis products and other derivatives on October 17 will slightly boost the value of producers’ shares.
However, he remains cautious and believes that the majority of these products will not be on the market until December and that the effects will not be felt until the fourth quarter of the fiscal year.