New Products, More Stores Won’t Fix Pot’s Woes: Cannabis Weekly
New Products, More Stores Won’t Fix Pot’s Woes: Cannabis Weekly
(Bloomberg) -- Things are finally brightening for the Canadian cannabis industry, but don’t expect it to show up in companies’ results anytime soon.
This week marks the earliest that newly legal formats including vapes, edibles and beverages can hit store shelves, although very few products will be available until early 2020, according to companies and provincial wholesalers.
Even once products are available, several provinces are placing restrictions on what can be sold. Quebec and Newfoundland have both banned sales of cannabis vapes, while Nova Scotia has prohibited flavored vaping products. Quebec has also banned most edibles.
Meanwhile, Ontario is finally opening its cannabis retail market, a step growers and retailers have been clamoring for. The province will end 2020 with about 250 stores, up from 24 currently but that’s still less than the approximately 270 stores that already exist in the smaller province of Alberta, according to John Zamparo, an analyst at Canadian Imperial Bank of Commerce. The roll-out will also be slow, with the first new store authorizations not expected until April, a full year after the province’s initial outlets opened.
“While this news is directionally positive, the magnitude of the announcement is more modest compared to our expectations and those of many industry participants we have spoken to,” Zamparo said in a note published Friday. “Though initial market reaction may be supportive, we believe current aggregate consensus among producers remains difficult to achieve.”
The changes come after a miserable year for pot stocks. The Horizons Marijuana Life Sciences ETF has dropped 60% since its high in March after the initial euphoria over Canadian legalization in October 2017 wore off. The industry has been beset by disappointing sales, regulatory breaches and production snafus.
2.0 Winners
While a growing store count benefits the industry as a whole, the biggest beneficiary will be Alcanna Inc., a liquor retailer that has moved into cannabis under the Nova brand, Zamparo said. Alcanna has C$40 million ($30.3 million) of liquidity to expand its store count and has said it will prioritize Ontario in 2020, he said.
Ontario’s removal of its store cap “is one of the major catalysts that we’ve been waiting for,” said Eight Capital analyst Jenny Wang. She believes Ontario can accommodate over 750 cannabis stores at maturity.
Besides Alcanna, Wang said the addition of new stores also favors Fire & Flower Holdings Corp., which has a strategic partnership with convenience store giant Alimentation Couche-Tard Inc. Fire & Flower reports third-quarter results on Tuesday.
Fire & Flower already has 15 strategic lease locations in high-traffic areas, mainly in Toronto, and will be able to use its existing platform to benefit from expected changes to Ontario’s distribution model, said Justin Keywood at Stifel.
“FAF could supply both its own stores and potentially many other retailers, leading to a very strategic position,” Keywood said. “We see the Ontario government favoring FAF for this functionality over other companies that do not have a similar operating history.”
Upcoming Events This Week
MONDAY 12/16
- Hexo Corp. will report quarterly results before markets open
TUESDAY 12/17
- Fire & Flower will release results before markets open
- The MicroCap Conference holds an investor summit in Philadelphia including presentations from FSD Pharma Inc. and other cannabis companies
- CannaGather hosts an event in New York featuring Congressman Jerry Nadler and State Senator Diane Savino
Last Week’s Top Stories
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To contact the reporter on this story: Kristine Owram in New York at kowram@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jacqueline Thorpe, Will Daley
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