Pot stocks have been a roller coaster ride this year. At the start of 2020, cannabis companies were hit hard by the coronavirus correction. These pressures came after the terrible marijuana bear market of 2019, which saw industry valuations cut in half.
Recent weeks, however, have brought much-needed relief. Indeed, some companies are seeing their share prices soar.
The cannabis market is booming
Last week we got some exciting news: Canadian medical cannabis oil exports spiked by 500% in 2019. Health Canada reported that cannabis oil was exported to at 17 countries for medical and scientific purposes last year.
The total amount exported was roughly 5,372.3 liters. It’s a big reason why pot stocks have been zooming higher.
Canada is also becoming a global leader for dry flower exports. In addition to the oil exports in 2019, 3,740 kilograms of cannabis flowers were sent abroad. That’s a 180% rise year over year.
Why is this fantastic news for Canada? Well, it means Canadian marijuana producers have a front-row seat for meeting global demand, thereby increasing the potential market size by at least 1,000%.
“Anybody looking to export now is going to be looking at paths that are already open,” says Seale & Garland Consulting CEO Sarah Seale. “Canada has the opportunity of looking at the paths that aren’t open yet and making provisions to be the first one in the door in those markets as well.”
Pot stocks that capitalize on this opportunity will win.
“A lot of countries don’t have provisions in place to produce dried flower and oil products, so they’re going to look to other countries to be able to obtain those product formats,” adds CannDelta CEO Sherry Boodram.
This pot stock is ready
The name of the game right now is exports. But there’s a catch: Eventually, the export game will become commoditized. This will be especially true once foreign consumers establish ample domestic supply.
What’s the secret to success? Branding.
Coca-Cola Co and PepsiCo, Inc. are perfect examples of how branding can overcome the commodity trap. The constituent ingredients for their products are pure commodities, namely sugar and water. Yet consumers pay steep premiums for these low-value inputs.
Why? Because customers are buying the brand, not the separate ingredients.
Today, Coca-Cola and Pepsi products are exported globally, even though they are relatively easy to concoct domestically. Pot stocks that can replicate this model will win. Hexo Corp has the lead.
At the start of the cannabis boom, nearly every cannabis producer rushed to bring supply online. In contrast, Hexo decided to take a brand-first approach. It sought to seek partnerships with existing brands rather than go it alone.
This year, for example, it plans to launch its first co-branded product with Molson Coors, a brand that millions of consumers already know and love.
Just ask yourself what’s more likely to succeed: a THC beverage from an unknown startup, or a THC beverage from Molson Coors? Hexo is betting on the latter.
This year, this pot stock aims to secure additional partnerships in new categories like sleep aids, cosmetics, and edibles.
If it succeeds in creating a cannabis brand powerhouse, shares will rise significantly more than the current $500 million valuation.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
The Motley Fool recommends HEXO. and HEXO. Fool contributor Ryan Vanzo has no position in any stocks mentioned.