Lack of regulatory progress in the U.S. has precluded any broad opportunities. This limits current upside opportunities to only the strongest, best-managed companies.

in the U.S. has precluded any broad opportunities. This limits current upside opportunities to only the strongest, best-managed companies. The U.S. “vaping crisis” and grossly slanted media reporting generated a totally unjustified sell-off in marijuana stocks.

and grossly slanted media reporting generated a totally unjustified sell-off in marijuana stocks. In Canada, provincial incompetence and foot-dragging in opening up cannabis stores created a supply bottleneck that seriously impaired overall revenue potential in the near term.

created a supply bottleneck that seriously impaired overall revenue potential in the near term. This retail bottleneck (as LP’s ramped up cultivation) has led to a rise in cannabis inventories and falling margins for Canadian cannabis cultivators.

2019 Cannabis Winners

The Biggest 2019 Cannabis Winners Were In Canada

In many respects, 2019 was a year to forget for cannabis investors. In market parlance, there waswith the cannabis industry.It didn’t start out that way. Marijuana stocks began the year rallying – but it was short-lived. Stocks peaked at the end of January, remained flat until March, and then commenced a sickening descent.As the year draws to a close, this plunge in stock prices has been as irrational as it is excessive. More on this later.As investor sentiment soured and the sector evolved, The Seed Investor started narrowing its own focus. We surveyed the cannabis landscape and settled on several investment themes.Those were the themes that attracted the most media attention in 2019. Less noticed were several positive investment drivers:In the United States, the lack of further regulatory progress at both the federal and state level has severely undercut the U.S. cannabis industry in 2019.Virtually nothing was accomplished at the federal level this year. The much-touted SAFE cannabis banking bill that would open up banking services for legal cannabis companiesin the Republican-controlled Senate.At the state level, fewer states than expected moved to legalize cannabis. Compounding this, many states with already-legal cannabis markets continue to torpedo the legal cannabis industry with legislative and bureaucratic idiocy. Here California isThe U.S. “vaping crisis” represents one of history’s most-absurd market disconnects.Thousands of Americans developed serious respiratory illnesses fromcannabis vaping products (and dozens have died). But what are the actual consequences of this media-hyped “crisis”?It puts much more pressure on the U.S. federal government to nationally legalize-and-regulate cannabis – to protect Americans from these tainted illegal products.Support foramong Americans hasn’t waned. This is despite all the irresponsible media reporting. Mainstream pundits attempted to portray this as a general problem for not only the U.S. cannabis industry, but even the Canadian cannabis industry – for which this has no impact whatsoever.Sales for U.S.-based cannabis companies have been. So where was (is) the justification for the massive sell-off in U.S. marijuana stocks? There isn’t any.Yet even in this extremely challenging environment for U.S.-based cannabis companies, some of the strongest, best-positioned companies still had very successful years – and generated net gains in 2019.In our, we pointed to three popular U.S.-based companies that produced positive returns for investors.(CAN:CURA / US:CURLF) is the world’s largest cannabis company by revenues. It’s a broadly based MSO that is approaching profitability. Investors selling at the 2019 high could have reaped more than a double during the year.(CAN:TRUL / US:TCNNF) dominates Florida’s large medicinal cannabis market. It’s now also moving into additional states. TRUL delivered better returns in the 2nd half of 2019 than any other major cannabis stock.(CAN:PLTH / US:PLNHF) is a Las Vegas retailing powerhouse. It operates the world’s largest cannabis store. Planet 13 has been able to translate that strong positioning into an “up” year for investors.All three are delivering positive returns for 2019. All three provided solid profit-taking opportunities over the course of the year.While the United States clearly offers more long-term potential for legal cannabis, todayremain in Canada.However, because of provincial delays in opening up retail cannabis, we have also narrowed our focus here. In June, we began banging the drum for– further down the supply chain and less affected by initial retail pains.As provincial delays in store-openings worsened, we also targeted. In a market with a lack of retail stores, wholesaling opportunities for Canadian LP’s have been limited. But for those companies actually operating cannabis stores, they benefit from strong demand and (generally) high margins.That said, the best-performing major marijuana stock in Canada (and North America) in 2019 was a Canadian cultivation specialist.(US:VFF / CAN:VFF), a Canadian cannabis cultivation powerhouse, had a tremendous year in 2019. Like nearly all marijuana stocks, VFF has been pushed well below its 2019 high. Even so, it’s on track to end the year at nearly double where it began 2019. Profit-taking investors could have netted more than a five-bagger with Village Farms if they sold near the high.(CAN:LABS / US:MEDIF) is one of the two Canadian extraction specialists that The Seed Investor has been touting this year. Rapidly scaling-up extraction capacity. Very strong margins. Very strong revenue growth. Full profitability. Based on this, investors had the opportunity for more than a 300% gain in 2019.(formerly Valens GroWorks) (CAN:VLNS / US:VGWCF) is Canada’s other dominant extraction specialist. Similar to MediPharm in terms of scaling-up capacity, margins, revenues, and profitability. Where the two companies differ (at the moment) is that Valens is moving towards greater vertical integration while MediPharm is busy expanding into Australia’s emerging cannabis market.Valens is also set to end 2019 strongly higher on the year. Astute investors could have more than tripled their money in 2019 by selling VGW near the high.What makes these 2019 winners all the more impressive is the horde of short-sellers that flocked to the cannabis industry. Egged on by the ultra-negative (and inaccurate) media reporting, short positions across the cannabis industry have swelled toConversely, this over-exposure on the short side in 2019 creates enormous potential for a “squeeze” in 2020.While Canada’s extraction specialists managed to thrive this year, Canadian retail specialists have not been able to match that performance.We’ve focused on three of Canada’s cannabis retailing leaders:(CAN:META / US:NACNF),(CAN:FAF / US:FFLWF), and(CAN:CHOO / US:CHOOF).With overall growth in Canadian cannabis sales below expectations, none of these three companies produced positive investor returns in 2019. But all were very active in adding to their cannabis store totals – through a mixture of acquisitions and organic growth.Now Cannabis 2.0 has arrived. A wide array of new (and generally higher margin) cannabis products are expected to lureto the legal cannabis market. This would translate into roughlyfor the legal industry.The potential is here.Alberta has already. With roughly 350 retail locations, by itself Alberta accounts for almost half of Canada’s 700+ cannabis stores today.At the opposite end of the spectrum, Canada’s largest provinces (Ontario and Quebec) have been the worst performers in opening up stores. Conversely, Ontario has recently signalled that it is overhauling its dysfunctional system for cannabis store licensing in favor of ansystem.If implemented effectively, this represents a massive upside for Canadian cannabis in general – and cannabis retailers in particular. While the stocks of these retailers have been a disappointment in 2019, we will have much more to say about Canadian cannabis retail when we publish our own take on “looking ahead to 2020.”For cannabis investors with a strong focus on Canadian LP’s, there were also reasons for optimism despite the negative returns in 2019.(US:APHA / CAN:APHA) has now reported profitability for two consecutive quarters.(US:ACB / CAN:ACB) posted an industry-leading Gross Profit of CAD$53.7 million and 58% Gross Margins in its most recent quarter. Despite a disappointing year, industry leader(US:CGC / CAN:WEED) isfrom its November low following a “buy” recommendation from BoA Merrill Lynch.Even with the headwinds for U.S.- and Canadian-based cannabis companies, thecould not be justified by cannabis industry fundamentals.The mainstream media claimed (over and over) that it wasthat pushed down marijuana stocks. This excuse doesn’t hold water.Several Canadian cannabis companies transitioned to profitability in 2019. Along with MediPharm, Valens and Aphria, several smaller Canadian companies also achieved this.All saw their share prices go down, not up, after they reported profitability. A massive investment disconnect.Marijuana stocks melted down in 2019, for “reasons” that have been both exaggerated and misreported by the. Many positive industry developments and investment drivers were completely ignored by (so-called) analysts and are not remotely reflected in current valuations.For these reasons, this year’s investing pain could turn into next year’s epic bull-run.DISCLOSURE: The writer holds shares in Curaleaf Holdings, MediPharm Labs, The Valens Company, Meta Growth, and Choom Holdings. Choom Holdings is a client of The Seed Investor.