Marijuana Stocks Have A Bearish Short-Term Outlook, But Marijuana Crypto Could Ride A Bull
The Cannabis industry operates in a grey area of sorts – about 13 U.S. states have legalized cannabis for recreational use, medical marijuana is legalized in 33 U.S states but being in possession of marijuana is still a Federal crime.
The criminalization of marijuana at the federal level makes it hard for marijuana companies to do business because traditional financial institutions are reluctant to bank them.
The lack of access to robust financial services means that many of their operations such as payroll, sales, and bulk purchases tend to rely on cash. By implication, the stocks of public marijuana companies haven’t had a chance to take off and to deliver value to investors in the $52B global industry. This piece explores the factors bedevilling marijuana stocks and how those same factors may be the reason marijuana crypto tokens are set to thrive.
Here’s Why Marijuana Stocks Have Been Struggling
Many people had thought that 2019 was the year marijuana stocks will go mainstream and the first quarter of 2019 supported that assumption. However, the industry ended up having to fight many battles on many fronts and it soon gave up the early gains.
In the year-to-date period, the share price of Canopy Growth Corporation (NYSE:CGC) was flat with 0.38% gains. Understandably, Oppenheimer analyst Rupesh Parikh in a research note to investors observed that “We continue to maintain shorter-term cautious views toward CGC’s prospects given continued headwinds in the Canadian market, regulatory challenges (CBD in the U.S., vapes in Canada), and internal delays in launching beverages.”
While Canopy Growth is practically flat, Aurora Cannabis Inc. (NYSE:ACB)’s stock is down 7.35%, Cronos Group Inc. (NASDAQ:CRON) has declined by 8.61% and the share price of Aphria Inc. (NYSE:APHA)’s stock has plummeted by more than 15%. In contrast, the NASDAQ Composite index is up 3.56% and the S&P 500 has gained 6.68% in the year-to-date period as seen in the chart below.
One of the headwinds that marijuana stocks faced last year was that financing business operations are challenging in almost all of North America. Secondly, the high U.S. tax on marijuana companies such as the state tax, local tax, wholesale tax, and an additional 15% excise tax in California makes it somewhat challenging for legal marijuana businesses to stay competitive relative to black market products.
In Canada, Health Canada which had the regulatory role to help Canadians maintain and improve their health failed in its bid to review and approve licenses for the cultivation and processing of marijuana products in good time. Also, the regulatory body delayed the release of the regulatory framework for marijuana derivatives until October 2019 even though it had revealed the plans almost one year earlier.
Hence, it was not surprising that in the last one-year marijuana stocks have underperformed the broad S&P 500 with about 50% loss in trading price relative to the 13% gain that the broad S&P 500 recorded.
A Synergy Of Crypto And Marijuana
The cryptocurrency and marijuana industries are both in the legal grey area and they are challenging conservative ideas to usher new paradigms in the socio-economic sphere. Cryptocurrencies provide an alternative store of value and measure of trade beyond fiat currencies. 62% of Americans believe the use of marijuana should be legalized and former Vice President Joe Biden has publicly supported the decriminalization of marijuana and the expunging of criminal records for those convicted of its possession.
Now, a new breed of cryptocurrency tokens called marijuana coins is setting up shop to succeed where traditional stocks have failed investors. Marijuana crypto refers to a specialized type of cryptocurrencies designed to help businesses and people to quickly, safely, and securely spend money within the cannabis industry without having to worry about banking limitations.
Here Are The Top Trending Marijuana Coins In The Market
Tokes Platform (TKS) was launched by Multichain Ventures, which is also the parent company for Cubed, Reli, and EDEN. Tokes Platform is a tokenized platform created to solve the banking problem facing the cannabis industry. The platform facilitates financial services for marijuana operators through cryptocurrency payments. Also, the Tokes Platform is powering a blockchain-based "track and trace" solution to facilitate the supply chain visibility and the integration of existing "seed to sale" software for the marijuana industry.
The Case For Tokes (TKS)
Multichain Ventures, the parent company behind Tokes has been operational in the blockchain and crypto space since 2016. When it launched the Tokes token sale almost 4 years ago, the project was incredibly successful, and it surged about 110X during the initial coin offering. More importantly, the founding duo of Michael Wagner, CFA and Gabriel Allred, Ph.D. have strong backgrounds in financial modeling, data science, and research design.
Secondly, Tokes is a live product and part of an ecosystem of live products, unlike many crypto projects that are nothing more than nice imaginations and shiny whitepapers. For instance, the Tokes merchant gateway is already live. The gateway provides merchants with a crypto-enabled point of sale and e-commerce software which enables consumers to buy TKS at kiosk locations for a seamless onboarding experience for both merchants and customers.
Tokes also has cross-platform utility because it is a native store of value and unit of account on the Multichain ecosystem. For instance, it serves as a low-cost and fast payment option across sister services such as EDEN. Beyond the Multichain ecosystem, Tokes is also integrated with industry partners such as Vault Logic, GDA, CHEX, and tabu.
The Case Against TKS
The case against TKS is that the coin and its underlying business are growing very fast and for traditional Wall Street investors, the fast-paced growth might be worrisome. According to Coinmarketcap, if you’ve bought Tokes at the time of launch (or earliest known price) your approximate return will be 1,141.90% at the peak of its rally. Interestingly, while such accelerated growth might be scary on Wall Street, it is quite normal and expected in the crypto industry.
Hempcoin (THC) is one of the oldest marijuana crypto projects in the market. Started in 2014, HempCoin is designed to power transactions between consumers, distributors, and farmers in the marijuana industry. The coin is trading around $0.004758; it has an incredibly low 24-hour circulating supply of $243 which is negligible relative to its market cap of $1.2M.
The Case For THC
One of the reasons Hempcoin was initially popular among traders is that it also offers multifaceted solutions for the crypto industry. For instance, the team promised to develop HempTRAC for tracking data in the marijuana industry, its HempPAY project offers payment solutions and its HempDEX was supposed to facilitate the global exchange of the commodity.
Secondly, Rocky Mountain Ayre, the company that back Hempcoin had revealed its plans to integrate the coin into traditional e-commerce solutions such as WooCommerce, Magento, OpenCart, and Shopify. If the team succeeds in pulling off the integration, it will mark a successful integration of cryptocurrency with real-world products and trigger a faster onboarding experience in the mass market.
The Case Against THC
A solid case against Hempcoin is that it’s parent company Rocky Mountain Ayre Inc. (RMTN) is a publicly-traded firm on Wall Street. Wall Street is not particularly fond of cryptocurrencies; hence, there are some concerns about where the loyalties of the founders lie and if they are truly committed to the long crypto game or just wanted to ride on the frenzied popularity of cryptocurrencies for virtue signaling.
Potcoin (POT) brands itself as the cryptocurrency of the cannabis industry because it was designed to allow cannabis enthusiasts to transact, interact, and communicate globally. It promises merchants fast transaction confirmation, low fees, and zero chargebacks.
The Case For POT
Potcoin has a market cap of about $3.7M, it has a 24-hour volume of $20,632 and its circulating supply of about 223M POT represents about half of its max supply of 420 POT. The token is currently trading around $0.0167 down from its all-time high of $0.50 at the height of the 2017 crypto bull run. Potcoin was once a crypto darling and the current low price might provide room for a huge upside potential if it can fix some fundamental issues around its operations.
The Case Against POT
All asset classes come with an attendant risk and while the bull case looks at the potential upside, the bearish analysis highlights the potential downside. On Potcoin, the potential downsides are particularly pronounced and, surprisingly, the token showed up on the top 5 trending list of marijuana crypto projects. Starting with the project itself, the source code in the Github repository was last updated on December 1, 2018, and no one has touched its frontend since November 2018, 2017.
The second case against POT is that they practically don’t seem to have any users. Since launching in 2014 and raising over $100M in a token sale, one would have expected that Potcoin has at least a working product and its focus now should be on user growth. Rather, the company is spending money on seemingly irrelevant PR stunts such as sponsoring Dennis Rodman’s trip to North Korea while it doesn’t seem to be actively pushing product development or user growth.
According to a new report from Grand View Research, the size of the global marijuana market is expected to grow by a CAGR of 23.9% to $66.3 billion by 2025. The analysts cited the growing adoption of cannabinoids in the medical industry as one of the factors driving growth. They also listed the rising sentiments to decriminalize and legalize marijuana in some countries as potential tailwinds for the industry.
The marijuana industry is on the path to another boom as the hype subsides and companies with solid business models are emerging. However, in the short term, marijuana stocks aren’t likely to get much love on Wall Street because Wall Street tends to rely on Washington for direction.
The fact that the cryptocurrency industry is pushing boundaries and the fact that coins such as Tokes are helping marijuana firms solve problems that traditional financial institutions aren’t able to tackle suggests that marijuana coins have a bright future ahead.
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