The cannabis industry's recent struggles are not only impacting publicly traded companies, but also those looking to list on North American exchanges as well. It's another potential consequence of investors being very bearish on cannabis stocks lately, and that could be bad news for the industry.
One such company, Breath of Life International, is delaying its planned IPO this year because it's concerned that the market is just not strong enough. The stock was expected to be one of the bigger cannabis IPOs to hit the market, and was supposed to go public on the Toronto Stock Exchange, becoming the first Israeli-based company to do so. With sights set on the Canadian, European, and Australian markets, the company looks to be a big player on the international stage, and it expects to have a production capacity of 870,000 kg of dried cannabis by the end of next year.
While the company still plans to go public, recent developments have shelved that idea for the time being. In an interview with BNN Bloomberg, CEO Tamir Gedo said, "When the market is ready to be bullish, we'll go ahead immediately."
Recent IPO failures could deter more new entrants
It certainly doesn't help that one recent NASDAQ IPO, Sundial Growers (SNDL -0.32%) has had a miserable time on the markets. Not only did the stock plunge on day one, but it has seen its valuation cut in half since then.
Whether it's new stocks or old stocks, investors haven't been trusting pot stocks this year, and it's hard to blame Breath of Life for its decision to hold off. Delaying an IPO, especially under adverse market conditions, isn't uncommon -- or something that only happens in the cannabis industry. Both WeWork and Postmates have delayed their IPOs as investors have started to turn sour on tech IPOs as well, with the most notable flops this year being Uber and Lyft. Even the once high-flying Beyond Meat has fallen more than 35% in just the last three months.
Some notable cannabis IPOs that are expected to move forward in the near future include the fish-waste cannabis producer Green Relief, multi-state operator Hemptown, and HempFusion, which sells hemp-derived CBD wellness products in more than 3,400 retailers across the country. However, in light of the industry's current challenges, these IPOs could be delayed, although nothing has been confirmed thus far.
When will the markets be bullish on cannabis again?
The timing of a potential recovery in the cannabis industry is the million-dollar question a lot of cannabis investors would certainly like the answer to. Cannabis stocks have been in a free fall for months, with one of the biggest surprises being Canopy Growth (CGC -0.66%), which has fallen 55% in just six months. The stock used to be one of the safer investments in the industry; it was the industry leader, and having a hype man like former CEO Bruce Linton pumping the company's prospects certainly helped.
But with Linton gone and the company's results still poor, it seems the excitement surrounding even one of the top pot stocks has run out. The new edibles market in Canada, which is expected to be ready by December, could be an opportunity for Canopy Growth and other pot stocks to reenergize the Canadian industry. However, there still aren't enough retailers up and running to help facilitate sales growth. And it doesn't help that significant restrictions on edibles could limit just how much growth there will be as a result of the new segment.
Unfortunately, there's no clear timeframe for when investors might be able to expect the industry to turn things around, as there's nothing on the horizon to suggest that a bottom has been reached just yet.
Takeaways for investors
Investors waiting for Breath of Life's IPO -- or another big cannabis IPO -- may be left hanging for a while.
The good news, however, is that once the dust has settled, investors may end up with more fairly valued cannabis stocks to invest in, ones that won't be at risk for the types of corrections that we've seen on the markets this year. That could help minimize the risk investors are exposed to, and turn out to be a good thing for the industry in the long run.
In the meantime, investors may want to look at a stock like Canopy Growth that's fallen hard lately or Charlotte's Web (CWBHF -0.54%), which has already proven to be much more of a value buy. And with there being less uncertainty surrounding its business, investors know what they're getting with the company and it could be a much safer investment to make today.