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Новости/Аналитика

Recession or correction of the market for medical hemp

28.11.2019

Given the fact that at the end of last year, hemp products stocks reached a record high, 2019 should be the most successful year for the industry of this plant . Cannabis for adults becomes legal in Canada , the adoption of regulations governing the ability to use the therapeutic properties of hemp is increasingly observed all over the world , press coverage and investor confidence in this industry are reaching new heights. However, 12 months later, the shares of the major companies involved in medical cannabis, reached a nine-month low, and no legislative decisions or major industry deals can stop the crisis in the short term. As we approach the end of the year, it’s worth considering whether the industry is facing a “soap bubble explosion” or a global market correction .

Stock prices in large companies such as the Cronos Group and Canopy Growth fell more than 70% and 65%, respectively, from their highs in 2019 and about 30% compared to last year. The high ratings given by the analysts were not supported by decent financial indicators, which led to the loss of billions and curtailing the activities of numerous companies. At the same time, the hemp industry does not collapse to a state of default. The best stocks are still being sold at a higher price than their original ones, however, lowering the cost of securities and making a profit lower than expected is very worrying for many businessmen. What is behind the decline in the market ?

The fact is that at the international level, a complex regulatory regime restricts the access of a significant number of patients to medical cannabis . Promising programs in Ireland , the UK and France did not lead to a significant number of regular patients or a significant increase in the number of appointments. In addition, cannabis is still banned at the federal level in the United States , stifling the world's most prosperous market . In fact, this is preventing the American market from unleashing its full potential. Strict medical cannabis rules turn off much of the investment community , making large institutions reluctant to invest in cannabis. As a result, the capital supporting the industry is usually created at the expense of individual retail investors who quickly provided start-up funds for “aggressive development” and who invested money, primarily on the basis of widespread excitement in the media surrounding this industry. These investors tend to be less patient during periods of downturn in the market to see a return on their investment , and may prefer to sell their shares before it will make an institutional investor. If large institutions began to invest more freely in legal stocks of medical hemp , this could significantly change the development path of the industry. Hemp sector , associated with the use of therapeutic / recreational properties of hemp on the decline due to the hype created around it, because the legalization of recreational activities in Canada and some states of the USA was not sufficient to produce the profits that await investors .

Another addition to global market trends is the fall in hemp prices in North America , which reduces the potential margin (the difference between price and cost) for retailers . Most recently, the Office of sanitary supervision over the quality of food products and medicines (Food and Drug Administration, FDA) of the USA has declared, that " can not come to the conclusion that cannabidiol (CBD) can be considered safe substance 'for use in food products . The aforementioned federal agency also reported that it sent another 15 warning letters to companies for illegally selling CBD products that violate the Federal Law on Food , Drugs, and Cosmetics . The FDA has published revised consumer recommendations stating that cannabidiol can have a negative effect on the liver and negatively affect the metabolism of other drugs, causing serious side effects.

Commentary of the Ukrainian Technical Hemp Association

Given the fact that at the end of last year, hemp products stocks reached a record high, 2019 should be the most successful year for the industry of this plant . Cannabis for adults becomes legal in Canada , the adoption of regulations governing the ability to use the therapeutic properties of hemp is increasingly observed all over the world , press coverage and investor confidence in this industry are reaching completely new heights. However, 12 months later, the shares of the major companies involved in medical cannabis , reached a nine-month low, and no legislative solution or large branch of the transaction are not able to stop the crisis in the short term. As we approach the end of the year, it’s worth considering whether the industry is facing a “soap bubble explosion” or a global market correction .

Hemp companies are shocked by layoffs, and investors suffer significant losses. For example, MedMen, one of the first American medical cannabis companies to become publicly available, announced it would lay off 190 employees. This followed even greater layoffs at Hexo (200 people) in October and CannTrust (180 people) in September of the outgoing year.

Nevertheless, there are arguments demonstrating that a recession in this sector of the global hemp market may ultimately be useful for the further development of the industry . The recession is a serious reminder that hemp breeding is just as influenced by market forces as any other business sector. The industry is completely dependent on the regulation and legislation underlying it, and without any clear action on the part of government agencies, it is becoming increasingly difficult to predict market growth . For the same reasons, expected earnings will always be inaccurate. Industry insiders have predicted a fall in the market since investment analyst estimates peaked.

The market will continue to expand, albeit at a calmer pace, as more and more countries continue to provide the regulatory framework for the use of the therapeutic properties of the plant . Governments are increasingly developing educational programs , and research institutes and specialized consulting companies are researching the effectiveness of the therapeutic properties of hemp as a medical product that can cure a number of diseases that patients are interested in in the long run. The industry is facing difficulties in many countries , but market participants will have to use their knowledge to work in a falling market in order to prosper in the future.

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