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Ideas #Potcasts 637, #Cannabis News and #Stocks on the Move- #CanadianCannabis
Industry on the Ropes (Nasdaq: $SNDL), (TSX:
$DN.TO) (OTCQX: $DLTNF) (NASDAQ: $HITI) (TSXV: $HITI.V)
Delta, Kelowna, BC, September 27, 2022
(Investorideas.com Newswire), investorideas.com, a global news source covering leading sectors
including marijuana and hemp stocks and its potcast site
release today’s podcast edition of cannabis news and stocks to watch plus insight
from thought leaders and experts.
Listen to the podcast:
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Today’s podcast overview/transcript:
In today’s podcast we look at the
Canadian Retail and Medical Cannabis sectors and how these two markets are
currently developing and issues they are facing.
While Canada was the first G7 country to
legalise cannabis and many were at first boldly optimistic about the Canadian
cannabis market, we are now seeing a fairly intense period of consolidation and
struggle due to a variety of factors in each province which has made many
investors as well as cannabis operators reassess where the Canadian market is
at.
A recent news article
from CBC
discussed the issues currently facing the Province of Alberta, a province that
has, like Saskatchewan and Manitoba, become oversaturated due to granting too
many cannabis licences.
In the article one Craig
Kolochuk, CEO and founder of 13th Floor Cannabis was blunt in his assessment of
Alberta's retail cannabis scene: there are too many stores, competition is
fierce, price wars have broken out and dozens of locations are at risk of
closing.
"Unfortunately, right
now, there's blood in the streets. We're just carving up the pie too much and
the market's not there. It's going to be ... who can persevere and who has a
strong balance sheet and some supportive shareholders," he said.
According to the latest
information from Alberta Liquor, Gaming and Cannabis (AGLC), there are 761
licensed cannabis providers in the province, with 194 of those located in
Calgary.
"I think 30-40 percent
of locations will be shut down in the next 12 to 24 months," said
Kolochuk.
One analysis of the Canadian retail cannabis market, done earlier this year by data
firm Cannabis Benchmarks, concluded that Alberta has too many retail outlets
based on comparable data from Colorado and Oregon, two U.S. states that
legalised the sale of cannabis in 2012 and 2016 respectively.
Het Shah, who compiled the data, says
Colorado has one recreational retailer for every 9,600 residents, while in
Oregon there is one store for every 6,150 people.
Alberta has roughly one retail outlet for
every 5,911 people. By comparison, the national number is pegged at one store
for every 12,184, according to Shah's research. He says there is room for
expansion across the country, just not in Alberta.
"On average, we found that Alberta
had roughly 27 per cent more stores than required to serve the
population," he said.
This is an issue many Alberta residents,
retailers and cannabis investors have been warning about since the onset of
legalisation as Alberta, Manitoba and Saskatchewan were less restrictive on the
cannabis licensing, initially to attract cannabis businesses and strengthen
their local economies, but as time as progressed we are starting to see the
repercussions of this lack of foresight, much as in the U.S. states with a more
limited licence policy are facing less issues than states with a more open
policy.
Now while for most small private retail
operators this issue is reaching a breaking point, for larger retail brands
such as DELTA 9 CANNABIS INC. (TSX: DN) (OTCQX: DLTNF) there is opportunity for
acquisition and growth. Delta 9 just recently announced that on September 6, 2022 it
completed a previously announced transaction with 10552763 Canada Corp.
whereby, pursuant to the asset purchase agreement between the Company and the
Vendor dated August 12, 2022, the Company acquired all or substantially all of
the Vendor’s assets relating to the operation of three Garden Variety branded
retail cannabis stores located in Manitoba, two in Winnipeg and one in Brandon.
“We are pleased to announce the closing
of another strategic retail acquisition to grow our market share across the Canadian
prairies,” said John Arbuthnot, CEO of Delta 9. “Delta 9 now operates 38
cannabis retail stores, positioning us as one of Canada’s largest vertically
integrated cannabis retailers.”
Alberta, Manitoba and Saskatchewan are
not alone in witnessing a consolidation period as we see a similar example with
High Tide Inc. (NASDAQ: HITI) (TSXV: HITI), a leading retail-focused
cannabis company with bricks-and-mortar as well as global e-commerce assets,
who announced the completion of its
acquisition, through Companies' Creditors Arrangement Act ("CCAA")
Proceedings, of the final retail cannabis location out of the nine store
portfolio for CAD$1.1 Million. The Store is located at 7555 Montrose Road in
Niagara Falls, Ontario, and is situated in Niagara Square, an outlet mall
anchored by numerous national big box and discount retailers.
For the three months ended April 30,
2022, collectively, the Store, along with the eight Choom locations that were
previously acquired by High Tide, generated annualised revenue of CAD$10.2
million and annualised Adjusted EBITDA of CAD$1.3 million. The purchase price
(inclusive of all nine Choom locations) represents 3.8x annualised Adjusted
EBITDA for the three months ended April 30, 2022.
High Tide Inc. also just recently
filed its financial results for the third fiscal quarter of 2022 ended July 31, 2022. One of the
key highlights was revenue increasing to $95.4 million in the third quarter of
2022 compared to $48.1 million in the same quarter last year, representing an
increase of 98%. Sequentially, revenue increased by 18% compared to the second
quarter of 2022
We are not only seeing consolidation on a
small scale with retail acquisitions and mergers, but also on the larger scale
like with last month’s
announcement from SNDL Inc. (Nasdaq: SNDL) and The Valens Company Inc. (TSX: VLNS) (Nasdaq: VLNS) who announced that they have
entered into an arrangement agreement to combine their businesses and create a
leading vertically integrated cannabis platform.
Pursuant to the terms of the Agreement,
SNDL will acquire all of the issued and outstanding common shares of Valens,
other than those owned by SNDL and its subsidiaries, by way of a statutory plan
of arrangement.
With 555,500 square feet of cultivation
and manufacturing space and 185 cannabis stores under the Spiritleaf and Value
Buds banners, the combined company will offer a complete portfolio of branded
products to consumers in Canada through its own supply and distribution
channels. With approximately $314 million1 in net cash and no debt, SNDL will
continue to have one of the strongest balance sheets in the North American
regulated cannabis industry. SNDL will also have the highest pro forma Canadian
cannabis revenue on a last fiscal quarter annualised basis.
Now while provinces like Alberta are
having issues with an abundance of licences, in the province of Quebec, we are
seeing a serious backtrack with their most recent move to make home growing
illegal.
Recently in Quebec City, the Supreme Court
of Canada heard arguments on the constitutionality of a Quebec law that forbids
people from growing cannabis plants for personal use.
Janick Murray-Hall is challenging the ban
on the grounds that it is unconstitutional and that it directly contradicts the
federal Cannabis Act. Passed in 2018, the federal law makes it legal for
Canadians to cultivate up to four plants for personal use.
"We seem to be putting aside the
existence of this right to grow," Murray-Hall's lawyer Maxime Guérin told
the nine Supreme Court justices.
"There's an opposition between the
federal position and the provincial position."
The lawyer arguing on behalf of the
attorney general of Quebec, Patricia Blair, told the court that the Criminal
Code is meant to prohibit certain actions and does not give people positive
rights.
That means the Cannabis Act does not
entitle people to grow their own plants, it just makes it not illegal to do so,
she said.
Quebec has been a province under constant
criticism from the cannabis industry and cannabis advocates for continually lagging behind other
provinces with
regards to both its recreational and medical cannabis market run by the SQDC.
There has been criticism surrounding
funding, licensing, distribution and recreational and medicinal access and
things don’t seem to be improving.
One recent news story discussed how some medical
cannabis operations have refused onboarding more patients due to funding
issues.
Santé Cannabis is the only no-fee medical
cannabis service covered by Quebec's public health insurance.
Patients would get a referral from their
doctor, then be paired with a nurse-practitioner and physician to learn which
cannabis products could work for their specific needs. The organisation does
not sell cannabis.
"It really is an essential
health-care service that isn't offered by the SQDC, isn't available in
pharmacies and clinics or hospitals across Quebec, we're here because there's
an important and critical need," said Prosk.
By law, only doctors and
nurse-practitioners can write a medical document like a prescription for
cannabis. But less than 10 percent of doctors in Quebec actually prescribe
cannabis, the lowest in Canada, said Dworkind.
Even the more populous provinces of
Canada have seen massive complications in their cannabis industry as both BC
and Ontario have had recent meltdowns of their government run wholesale
distribution networks with the BCLDB strikes causing layoffs and closures and
the AGCO not faring much
better.
As each province fails outright at
effectively competing with the illicit market and continues to suffer from
government incompetence and shortsitedness, the Canadian Federal government has
launched their long awaited review of the Cannabis Act that came into existence
four years ago legalizing cannabis in Canada.
The review is supposed to determine if
the legislation is meeting with the needs and expectations of Canadians.
George Smitherman, president and CEO of
the Cannabis Council of Canada said they welcome the review but want to see
urgent relief from the tax and regulatory burden on legal cannabis producers to
enable competition with the illicit cannabis industry.
“Some areas where we’re really in need of
reform to compete better with the Illicit market are to restore some order of
financial viability for licensed participants, to give us some more flexibility
to communicate with our consumers and to reduce some of the regulatory burden that we’re experiencing,” Smitherman
said.
CTV National News spoke with the former CEO of
cannabis behemoth Canopy Growth, the president of the Cannabis Council of
Canada, and a brand partnerships expert who currently works for a company that
is connecting consumers with black market products.
While nearly everyone working in the
marijuana game agrees that wholesale changes are needed, finding a consensus on
how to move forward remains elusive.
Industry complaints range from sky-high
taxes, government overreach and advertising restrictions to the proliferation
of the black market.
Leafythings, an online cannabis
directory, was recently given the “best innovative technology” award at a
national industry gala, though their big win turned heads mainly because the
products they offer online come from both licenced companies and unregulated
retailers – which lawmakers still point to as illegal.
George Smitherman, the president of the
Cannabis Council of Canada, believes that “the playing field is nowhere near
level. There's illegal retail store fronts, there’s also considerable illegal
delivery services which are also largely ignored (by the authorities).”
As this review continues Canadian
cannabis companies such as Aurora Cannabis and Canopy Growth have both not only
seen massive decline in their stock prices over the last two years but have
also been dropped from the S&P/TSX Composite Index and S&P/TSX 60
Index.
As both investor confidence, consumer
confidence both medically and recreationally and the confidence of cannabis
business operators all continue to decline due to a market that has been
clearly mismanaged by both the Provincial and Federal Governments, one can only
guess what the results of this current federal review will be and how or if the
Canadian cannabis industry can bounce back in the face of so much adversity.
Canada may have been the first man
through the door when it came to federal legalisation but a success story it is
surely not.
Investor ideas reminds all listeners to
read our disclaimers and disclosures on the Investorideas.com website and that
this podcast is not an endorsement to buy products or services or securities.
Investors are reminded all investment involves risk and possible loss of
investment.
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