As 2019 has come to an end, it will undoubtedly go down as one of the strongest years in a long time for the broader market and likely the worst year for marijuana stocks. What started out as a profitable investment in the first quarter turned into a major buzzkill for the remaining nine months. Since the end of the first quarter, most cannabis stocks have lost a significant chunk of their market cap as questions rose concerning the growth trajectory of the global cannabis industry fell short of expectations. This has left the industry struggling to answer one simple question: What does 2020 hold in store for cannabis stocks.
Several cannabis derivative products are poised to breathe life into an already staggered industry such as infused beverages, vapes and concentrates with the biggest mover being topicals. Derivates offer significantly higher margin products than traditional dried cannabis, making this past Decembers launch particularly important for the financial well being of marijuana stocks. What’s more, derivatives are particularly popular with younger adults and first-time users, thereby providing a bridge for the pot industry to a new generation of cannabis consumers.
Cannabis derivative products such as topicals work effectively at creating a bigger overall marker for the former Schedule 1 drug, for example, for users who may not feel comfortable inhaling a rolled cigarette or vape pen. They offer significant advantages for producers as well, namely the prospect of higher margins and expanded profitpotential. Cannabis infused topicals involve a significantly greater deal of processing before they’re ready for market. That means they’re more expensive and complex to manufacture, but it also allows space for producers to differentiate themselves, allowing them not only to charge a higher margin for their products but to differentiate themselves from a branding perspective as well.
For processing companies in the cannabis industry who own their own IP, such as XTRX Solutions, for topical formulations are poised to become winners in the race to market. Having a handful of topicals developed ahead of time and have them ready to be personalized for the client, with scents, texture, CBD and THC to name a few options, will come out ahead. Licensed producers will be able to cut wait times while formulating their own formulations, avoid finding a manufacturer, cut down on lead time, and not to mention avoid any importing fees associated with purchasing a ready-made base from outside Canada. This will enable a company to develop and produce an infused topical much faster and have their product readily available on the shelves than most of their competitors.
With the state of the cannabis landscape as it is today, more and more Licensed Producers are bound to pivot from the stagnant dried flower and pre-roll revenue streams and move to a more lucrative means of selling their products through vapes and tinctures with the majority of the profit margins coming from topicals. Topicals are poised to be the leading derivative product this year as profit margins are high and they appeal to wider audience at the end of the day. Companies that have established partnerships with processors who have cut the lead time by having their own IP on several products are bound to hit their growth trajectory in 2020.