This week marks the first full week in the second year of cannabis legalization in Canada, and the arrival of Phase 2 – with a wide new variety of cannabis products. As we surveyed Canada’s cannabis market, we see a mixed picture.
Growth in sales is now increasing at a robust rate. But the cannabis black market still controls much too much of the overall market.
Valuations for Canadian marijuana stocks remain absurdly low. But a number of cannabis companies are moving aggressively forward on operations and making the transition to profitability.
In the United States, the story continues to be regulatory headwinds. SAFE remains before the Senate, with no assurance it will pass. The FDA still hasn’t moved on regulating CBD commerce. Meanwhile, the regulatory failure that has caused vaping illnesses/deaths among some cannabis users highlights the need for full legalization.
Monday, as promised, The Seed Investor took its own look at Canada’s cannabis industry as it celebrates the first anniversary of legalizing recreational cannabis. An industry that has tripled in size over one year. Strong, consistent month-over-month gains in cannabis sales. And cannabis companies that are already becoming profitable.
Now Phase 2 is here, with new cannabis products due to start hitting store shelves in December. It’s expected to add roughly 3 million new consumers of legal cannabis – roughly a 50% increase. For all these reasons, we look ahead optimistically to Year 2.
The flip side of this picture in Canada’s cannabis market is that the cannabis black market remains much too large. We observed that it still controls approximately 85% of overall cannabis revenues in Canada, considerably more than previous projections.
Clearly, Canada’s provincial governments are to blame. Several provinces (notably Ontario and British Columbia) have been abysmally slow in licensing retail cannabis stores. The result is more sales going to the black market.
Tuesday, we offered investors information on where we see particularly prospective opportunities in the Canadian cannabis industry. Specifically, we like the Canadian cannabis retailers and extraction specialists.
Each of these sub-sectors is currently well-positioned in Canada, for different reasons. We provided some of the leading names from among these companies for investors.
Wednesday, we turned our gaze to the U.S. cannabis industry. The Senate is currently holding a hearing on “marijuana and public health”. The Seed Investor is skeptical of this hearing, to put it in polite terms.
Senate co-chair John Cornyn (R-TX) is an anti-cannabis dinosaur, strongly opposed to cannabis legalization. Other key figures in the hearing are equally uninformed about cannabis. We see this as a ploy by Cornyn to undermine efforts to pass the SAFE bill for cannabis banking.
Then it was back to more cannabis news from Canada. Statistics Canada came out with its August numbers for Canadian cannabis sales, and they were big. Over CAD$127 million in sales. An 18.6% month-over-month jump versus July cannabis sales. The second consecutive month of cannabis sales topping $100 million.
Looking over recent months, sales are now accelerating. After a slow month in June (only a 6.2% increase), Canadian cannabis sales heated up over the summer. July’s sales represented a 12.5% month-over-month gain. Now August sales have continued to accelerate at that pace.
Thursday, we took a look at one of Canada’s leading cannabis retailers, Choom Holdings (CAN:CHOO / US:CHOOF). Choom announced receiving a new development permit for a cannabis store.
Why is this big news? Because it’s a permit for a Vancouver cannabis store location. Vancouver is presently one of Canada’s most under-served cannabis markets.
Friday, we started the day with an article on the strategy of Canopy Growth (US:CGC / CAN:WEED) to gain an inside track on the ultra-important senior’s market for cannabis. Senior’s have more health needs than the rest of us. They are also prime candidates for all of the general health-promoting properties of cannabis.
Through an arrangement with CARP (Canada’s advocacy group for older Canadians), Canopy Growth offers CARP members a 20% discount on selected cannabis products. While Canada’s industry leader has received a lot of media criticism, this is another strong move for Canopy.
Then Choom was back in the news. This time the company was announcing a new CEO. Corey Gillon is moving from his position as President into this senior role.
For those new to Choom, Gillon is a retail sector heavyweight. He spent 15 years with Walmart rising to lead its Western Canada division. From there he moved on to become Senior VP with Aritzia. Now Gillon is bringing all that expertise to his new position as Choom’s CEO.
These were some of the leading stories that we covered this week from the world of cannabis investing. As 2019 starts to wind down, we see the cannabis industry picking up in Canada. In the U.S., the industry remains dependent on achieving some regulatory milestones and moving past the health issues surrounding vaping.
DISCLOSURE: Choom Holdings is a client of The Seed Investor
Published at Fri, 25 Oct 2019 20:58:18 +0000