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Over the past two years, marijuana stock investors have watched the industry scale up to new heights. From 2014-2018, cannabis sales shot up by almost 300%. Estimates from around the financial world show the industry growing anywhere from 4 to 10 times as large as it is now by the year 2030. Although the future projections remain high, there are some very real issues that we are facing in the cannabis industry. In order to get on the path to the projected growth rates, many cannabis companies have decided to put certain cost-cutting measures in place. Additionally, these cost-cutting measures are a large part of the growing pains that have occurred due to the fast-paced rate of the marijuana industry.
Will These Two Pot Stocks Pay Off In 2020?
Currently, we are seeing a lot of companies work to conserve their free-flowing cash. Many pure-play pot stocks have had to shell out large amounts of capital to build expansive growing operations. Because of this, we are witnessing a cash crunch amongst cannabis companies. The methods of reducing budgets vary from company to company. These could include anything from layoffs to pausing production and more. Each method corresponds to the specifics of a given cannabis companies business. Because of this, there is no one universal solution to trim spending. So, what are the most popular ways that pot stocks are conserving cash?
The two ways in which cannabis companies have been cutting spending are by limiting acquisitions and cutting production by sizable amounts. Both of these practices have their pros and cons and each one is used for different situations. Additionally, these two methods are great for short term growth because they can be put in place quite quickly. So with cannabis companies working hard to make as much money as possible, how do these two cost-cutting measures affect these two pot stocks?
How Are Marijuana Stocks Not Spending Free Cash
Many marijuana companies have used acquisitions as a way to grow their business. This practice was noted after several large cannabis businesses received massive influxes of capital for different reasons. One of the notable examples of this occurred with Canopy Growth (CGC Stock Report). After receiving a multi-billion capital infusion, the company quickly began a spending spree.
Given the massive losses that Canopy was taking simultaneously, investors were not happy with the rate at which the company was making acquisitions. But this practice is in no way only something that Canopy Growth has done. Many cannabis companies choose acquisitions as a preferred route for growth. Often times, acquiring companies can be the fastest way to gain footholds in various markets around the cannabis industry.
Cannabis Companies Start Trimming Production
Cutting or halting production is another method of trimming spending that we have witnessed in the past few months. Although this may seem counterintuitive given the supply shortages that exist, oftentimes cannabis companies have no choice. The cannabis industry is relatively new which means that there is no way to tell what demand for a product will be. Because of this, many leading pot stocks can be out of touch with the amount of marijuana it should produce.
Aurora Cannabis (ACB Stock Report) is one of the largest growers of cannabis in the world. The company at its height had several multi-million square foot facilities all ready to grow marijuana. Recently, it decided to halt the buildout of more production locations to help cut costs for the future. This is only one example of what has happened several times in the cannabis industry over the past two months.
These two cost-cutting methods serve to illustrate ways in which some pot stocks are attempting to become future proof. Pot stock investors and cannabis company execs alike would love to see the industry flourish in the next few years. But, this will only be a possibility if the industry is able to scale its operations appropriately to market demand.
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