This legal cannabis market is slowing its growth – New Cannabis Ventures

By on September 25, 2022 0

You’re reading a copy of this week’s edition of New Cannabis Ventures’ weekly newsletter, which we’ve been publishing since October 2015. The newsletter includes unique information to help our readers stay ahead of the game as well as links to the most important events of the week. new.

Friends,

Canada this week released its monthly data for July, indicating that cannabis sales in the country were at a record high of C$394.8 million, up 4.5% sequentially and 17.8% compared to a year ago. While sales increase, this is the weakest annual growth on record:

Based on 7 months of results and our projections, it looks like total sales will be around C$4.55 billion this year, up around 19% for the year from 3.8 billion Canadian dollars in 2021.

This week, Canada also announced that it would review the program, launched about 4 years ago, after a big delay due to the pandemic. Investors like that cannabis is legal across the country, but they’re probably not happy with the stock market action. The NCV Canadian Cannabis LP Index has fallen 87% over the past three years and is down 56.8% in 2022:

Although stock prices have come down a lot, most Canadian licensed producers don’t seem like the best stocks to buy right now. Valuations are generally higher in Canada, while revenues, earnings and cash flow are lower than US peers.

Unlike US cannabis producers, Canadian LPs do not pay additional taxes (280E). They also seem likely to benefit from increasing legalization in Europe and possibly the United States as well. Given their generally weak balance sheets, however, it is not clear that they will be able to take advantage of market developments.

We have reduced exposure to Canadian LPs in our cannabis investor subscription service, 420 Investor, where we currently only hold two names in our model portfolios. Both have performed well operationally and are not burdened with massive negative cash flow losses like their peers. One has no debt and substantial cash on hand, making it an acquisition target in our view. Both stocks are trading below tangible book value.

The Canadian cannabis market has matured. It still has several challenges, and one that could change is that the 10mg THC maximum per pack could be improved. It would be an improvement, but it wouldn’t help the market that much. There are, in our opinion, still too many LPs. A bigger problem is that the provinces are usually the distributors. We don’t expect that to change.

While we remain bullish on a rebound in oversold stocks in the second half, we suggest investors looking to buy into the sector consider ancillary stocks and select multistate operators rather than most Canadian licensed producers.


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New Cannabis Ventures publishes selected articles as well as exclusive news. Here are some of the most interesting business content from this week:

Exclusives

TRP, which stands for “Tradition.” Responsibility. Progress. started as a single-state operator, but quietly and quickly grew to be present in 13 other states. Most of the growth has been organic and in an exclusive interview, co-founder and CEO Brandon Johnson said he expects it to stay that way for now with plans to go fully domestic at the moment. ‘coming. He also says the company intends to remain private for the foreseeable future. TRP recently entered the Florida market, opening the first cookie dispensary there. The company spent two years developing growing, manufacturing, processing and distribution operations in the state. TRP plans to open more stores in Florida and expand its culture in the state.

Cannabis wholesale platform LeafLink continued to evolve throughout what turned out to be a tough year for the industry. The technology company has bundled its solutions across its marketplace, payments, financing and logistics to offer its largest customers a way to run their businesses more efficiently. In an exclusive interview, co-founder and CEO Ryan G. Smith said the LeafLink team is looking for ways for its customers to make more use of the solutions it offers through its platform. He is focused on increasing customer engagement, adopting new tools and adding new leadership to his team.

Cannabis sales in Canada rose 4.5% sequentially to a record C$394.8 million in July. Sales were up 17.8% from a year earlier, but were down from the 23.2% growth rate recorded in June. In Ontario, an increase in the number of stores drove sales up 4.4% from June and up 30% from a year ago. Sales in Alberta were up 2.9% from June and 14% from a year ago. Quebec was up 0.4% from June and down 4% from a year ago, while British Columbia sales were up 5.9% from June and 17% compared to a year ago.

Funding

Red White & Blue has appointed Colby De Zen as President and Director and appointed Gabriel Bianchi to the Board of Directors subject to obtaining regulatory approvals. The company also restructured the terms of certain outstanding debts. In his new role, DeZen will streamline operations to gain efficiencies in each state, and extensively monitor and implement internal controls over financial reporting/planning, direct and indirect expenses, and capital expenditures. “By the fourth quarter, I intend to aggressively implement significant balance sheet improvements,” De Zen said.

High Tide entered into a C$19 million senior secured credit facility with connectFirst Credit Union Ltd., with an initial term of 5 years, at connectFirst’s floor interest rate. The company has been on a growth trajectory since launching its discount club model in October 2021. It also operates 140 Canna Cabana locations across Canada, with 36 stores added to its portfolio year-to-date thanks to organic growth and accretive acquisitions. Its goal is to continue to gain market share by increasing the number of its stores to 150 by the end of this calendar year and 200 by the end of 2023. fire,” said Raj Grover, President and chief executive officer.

Earnings

Aurora Cannabis revenue in the fourth quarter was flat sequentially at C$50.2 million and decreased 8% from the same period last year. In fiscal 2022, international medical cannabis net revenues grew more than 70% from fiscal 2021 and the company said it was beginning to see signs of stabilization in its adult recreational segment. in Canada.


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Sincerely,

Alain and Joel

Alan Brochstein, CFA

Based in Houston, Alan draws on his experience as the founder of the online community 420 Investor, the cannabis industry’s first and still largest public equity-focused due diligence platform. With his vast network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Prior to focusing on the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as a freelance research analyst after more than two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 on Seeking Alpha, where he has 70,000 subscribers, Alan is a frequent speaker at industry conferences and a frequent source for the media, including the NY Times, Wall Street Journal, Fox Business, and BloombergTV. Contact Alan: Twitter | Facebook | LinkedIn | E-mail

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