Last year, nearly every cannabis company was racing to find a big-time partner. Cronos Group, for example, secured a $1.8 billion deal with tobacco giant Altria Group. Cronos stock ran more than 100% on the news, rising to a peak market cap of $20 billion. Canopy Growth, meanwhile, locked down a $4 billion capital infusion from Constellation Brands, causing shares to skyrocket.

While the initial rush for partners sent cannabis stocks into the stratosphere, the back half of 2019 has been much quieter. In fact, many pot ETFs are down 50% or more in value. While this has created pain for marijuana investors, it’s also created opportunity for new partners to enter the space at attractive price points. In 2020, I expect a number of pot stocks to secure game-changing partnerships that could resurrect their struggling share prices.

Whichever companies attract the best partners will likely lead the industry in gains. The best time to place your bets is today. Here are two undervalued pot stocks ripe for a transformational partner.

Play the platform

Canopy Growth and Cronos shared one big characteristic before securing valuable partners: an early lead. In the ever-evolving world of pot, Altria and Constellation chose to invest in companies that had a head start on production, marketing, and distribution. If you want to bet on what’s worked thus far, HEXO (TSX:HEXO)(NYSE:HEXO) is the way to go.

HEXO is attempting to build the first platform for the cannabis industry. It has a grow facility in Quebec capable of producing more than 100,000 kilograms of pot per year, a truly massive 580,000-square-foot processing and R&D centre in Ontario, and a 58,000-square-foot distribution facility in Montreal.

In a nutshell, HEXO wants to create a platform so that any company in the world can use its services to create, manufacture, and sell cannabis products quickly and efficiently. It’s this positioning that makes HEXO the ideal buyout candidate. Over the next 12 months, HEXO will be a plug-and-play partner for any company looking to enter the space in a meaningful way. It’s already demonstrated early success. In 2018, it partnered with Molson Coors Canada to help create cannabis-infused beverages.

While HEXO is well positioned to attract more one-off partners, it shouldn’t be ignored that it has essentially built a vertically integrated cannabis company that can integrate seamlessly with a large acquirer like Coca-Cola or Kraft Heinz. If a multi-billion-dollar company wants to make a splash, HEXO is the most obvious target.

The ground floor

If you want to take a bit more risk, Green Organic Dutchman Holdings (YSX:TGOD) is the way to go. Its market cap is 60% smaller than HEXO, and the upside is commensurately higher. Green Organic recently lost its key partner, Aurora Cannabis, and is primed for a new partner to swoop in. The company has two major facilities ramping production next quarter, and all that pot needs somewhere to go.

In reality, Green Organic isn’t as well positioned as HEXO. It doesn’t have the ancillary infrastructure in place and is positioned closer to a pure-play grower. While an outside company likely won’t be interested, there’s big potential for interest from inside the industry. Aurora didn’t need Green Organic’s cannabis output because its internally owned Whistler Medical was already supplying it with enough output. If any pot company experiences disruptions in its supply chain, Green Organic will be at the top of its list.

Utah is the latest state whose school districts are taking a zero tolerance stance on vaping at school.

Following a string vaping incidents, illnesses and even deaths in teens, vaping has been at the center of controversy for months, with many health organizations urging students to no longer use vaping products.

To enforce the ban, school districts have installed specialized detectors in school bathrooms. The detectors are able to sense cigarette smoke and vapor from vapes. They are reportedly able to detect excess noise that might indicate fighting or bullying. When detection is made, a notification is sent to school administrators who can step in immediately.

“This was driven by our parent groups coming to us wanting us to do something,” Wasatch High School Assistant Principal Adam Hagen told 2 KUTV. “We were seeing an escalation in the number of vape cases.”

According to the US Food and Drug Administration, more than 20% of high school students are using vape products with the first reports of illness due to vaping beginning around March. Since then, at least 1,000 illnesses due to vaping have been reported and 18 people have died.

Research is being done to determine what exactly is causing illnesses and deaths but many health officials believe it may be due to the heavy metals used for the heating coils in some vapes. Additionally, contaminants have been found in vapes that could contribute to illness, including Vitamin E Acetate. It’s also been noted that illicit market vape products are more likely to cause harm than legal vape products.

Here is a rundown of the districts that have installed vape detectors and some early results according to 2 KUTV:

• Wasatch School District spent nearly $40,000 to install 40 sensors. They installed them in every bathroom of the district’s one bathroom and two middle schools. So far, at least 20 students have been suspended after getting caught vaping.
• Nebo School District purchased two detectors to use in a pilot program. So far, the sensors have not picked anything up.
• Grand School District spent more than $7,000 on sensors that were installed in April. So far, the district reports that the sensors have not actually worked. Administrators also said that two vapes were found at a school, both of which reportedly contained meth.

Other School Districts across the country have also recently installed vape detectors including districts in New Jersey, Ohio, Illinois and Massachusetts.

“We had some pretty traumatic experiences last year in which two students were ambulanced to the hospital for some sort of vaping or activity that led to that. It kind of brought a heightened sense of awareness to things,” said Principal Derek Morrison of Chicopee Comprehensive High School in Massachusetts.

President Donald Trump’s administration made a move last month to ban flavored e-cigarettes which tend to be popular among youth. First Lady, Melania Trump, also spoke out about her concerns on children having access to e-cigarettes.

“I am deeply concerned about the growing epidemic of e-cigarette use in our children,” she tweeted last month. “We need to do all we can to protect the public from tobacco-related disease and death, and prevent e-cigarettes from becoming an on-ramp to nicotine addiction for a generation of youth.”  

From food and drink to health and wellness and beyond, there’s one plant we can’t seem to get enough of: cannabis. It seems like every consumer product nowadays is taking part in reefer madness.

Home cooks are taking edibles to new heights. In places like Denver and California, you can take cooking classes specifically centered around food made with Mary Jane. The editors of Vice’s “Munchies” even put out a cookbook last year called Bong Appétit: Mastering the Art of Cooking with Weed. And it’s only one of many.

But marijuana culture today isn’t all based around the stuff you (er, people you know) smoked in college. Cannabis, long known for its medicinal and therapeutic purposes, is a hot commodity in food tech and other consumer products nowadays. Far more than just a way to get high, cannabis in its various forms has been used medically throughout history and in modern times as a treatment for pain and nausea, and has been found anecdotally or in limited studies to treat glaucoma, epilepsy and anxiety, among other conditions and symptoms. Businesses have caught on, and not a moment too soon.

The food products that utilize marijuana are a far cry from the old classic pot brownies (not that there’s anything wrong with those!). Thanks to modern science, producers are able to separate the two main chemical compounds found in marijuana: THC and CBD. THC has therapeutic benefits, but it’s best known as the part of weed that gets you high. This is because it’s a psychoactive compound. CBD, on the other hand, is not psychoactive — it can (supposedly) provide many of the anti-anxiety, analgesic benefits of the plant without producing a high. For obvious reasons, this gives marijuana a new appeal. It’s now possible to reap the benefits of the plant without experiencing intoxication, so you can lessen anxiety or pain while still functioning normally.

It’s worth noting at this point that many of the health benefits of CBD and cannabis in general are not scientifically proven in statistically significant, peer-reviewed studies. This is for a number of reasons, most significantly that marijuana is still a Schedule 1 controlled substance under federal law in the U.S., making legality an issue in its study.

But what CBD and other cannabis products lack in evidence, they make up for with enthusiasm. Companies and consumers alike are eager to try CBD in various products, from food to oils to skincare, in hopes of treating anxiety, sleeplessness and other woes. If you live in a place where CBD products are legal, you’ve probably seen them everywhere. Newsweek reported that CBD sales are estimated to grow 40-fold in the next four years, reaching a value of $23 billion. The big business of marijuana and CBD — California-based Arena Pharmaceuticals is the biggest publicly traded cannabis company in the world — is only growing.

You can already find CBD candies and oils at major national retail chains like CVS and Walgreens, and in states and municipalities where it’s legal, green connoisseurs can order CBD-infused lattes and cocktails. Even retailers like Sephora, Neiman Marcus and Barneys are selling curated displays of CBD-infused beauty and skincare products. The aforementioned Newsweek article reports that big names like Coca-Cola and Molson Coors Brewing are among the hordes of companies already working on their own CBD products. Clearly, the lack of scientific evidence isn’t diminishing anyone’s desire for herbal refreshment.

Except for the FDA, that is. The legality of marijuana and CBD is a confusing and often contradictory topic, and a hard one to keep track of because it’s changing all the time at the federal, state and municipal levels. But what can be ascertained is that because so much of the CBD industry is operating outside of any kind of government oversight, legally or otherwise, the quality of products can vary widely. This is something about which the FDA and independent doctors and pharmaceutical experts have raised concerns. Apart from companies making unfounded claims about the effects of their products, the actual ingredient makeup may be inconsistent, with some products containing less CBD than their labels claim. Little regulation and nascent standards of quality mean consumers might not always know what they’re getting.

But given the broad interest in CBD, that’s unlikely to remain the case forever. The FDA may have started cracking down on extralegal CBD product sales, but in the grand scheme of things, that only means that the agency recognizes the significance of the compound. CBD probably isn’t going away anytime soon, and among the food, drug, health and cosmetic industries, the race to do it best and biggest has already begun.

The U.S. cannabis market is projected to hit $30 billion in annual cannabis sales by 2025, according to a new report from an industry expert.

The “U.S. Cannabis Report 2019 Industry Outlook” from New Frontier Data in Washington, D.C., also reports that more than 38 million American adults consume cannabis at least once per year. That includes both marijuana purchased legally as well as on the black market. 

The report estimates a compound annual growth rate in legal marijuana sales of 14 percent between now and 2025. 

And These Are Conservative Estimates

In a press release on the new report, New Frontier Data CEO Founder and CEO Giadha Aguirre de Carcer said the $30 billion estimate has been arrived at using conservative figures. He noted that strong foreign investment and a steady increase in domestic consumption contributed to New Frontier Data raising its forecast to $30 billion.

Aguirre de Carcer also noted that expansion in the domestic market has happened as more states legalize marijuana. Michigan voters legalized adult-use marijuana in the fall of 2018. Illinois lawmakers did the same in 2019.

However, he also warned of potential issues, saying that “it is critical for stakeholders to understand how regulatory uncertainty, lack of accepted standards, and international market pressures may have a material and lasting economic impact in the currently flourishing U.S. cannabis market,” Aguirre de Carcer said.

So Who Is Using Marijuana And Why?

In addition to the more than 38 million American adults consuming cannabis at least once a year, the report also found that 36 percent of marijuana users report using cannabis daily, with 59 percent saying they use it once a week.

The biggest demographic group of cannabis consumers — about 45 percent of all cannabis consumers — were those between the ages of 25 and 44.

The expected growth gives an indication of how cannabis is being used. The annual sales of medical marijuana are expected to grow to $13.1 billion by 2025. The annual sales for recreational marijuana are expected to grow to $16.6 billion.

The entire report can be downloaded from New Frontier Data here.

They Also Offered New Information On Hemp

New Frontier Data also released a report on the hemp industry. With Congress making hemp legal in 2018, which has led to a flood of hemp-derived CBD products hitting the market in 2019, the industry as a whole has flourished, with many athletes, celebrities and numerous brands jumping into the market.

Given the trend, it's no surprise that the popularity has impacted the amount of land used for growing hemp. New Frontier Data reported that almost half a million acres are now devoted to growing hemp, compared to just 100,000 acres in 2018.

The report also found that Colorado leads the nation in hemp cultivation, with more than 80,000 acres of processing land area. The report found that Oregon, Kentucky, Tennessee and Montana are ahead of other states when it comes to hemp program expansion.

That said, California is set to become the top hemp-producing state as “thousands of acres have already been planted this year,” the report stated.