Canada’s oversupply of weed isn’t stopping companies from coming up with new, innovative strategies…
Canadians wanted recreational cannabis so bad that dispensaries actually sold out of all their cannabis in the first day of legal sales.
But something strange has happened recently.
Our neighbors to the north are talking about an oversupply issue.
One of the problems is that there are limited licenses and restrictive rules in Canada. You can’t sell cannabis legally if only a certain amount of licenses are given out in an untimely fashion.
Also, the prices can just be too high.
Those are part of the reasons why the black market is still thriving.
Hexo’s “Original Strain” will sell for C$4.49 per gram, which is about what the company estimates that buyers on the black market pay for quality cannabis. The only catch is that customers must buy it an ounce at a time – that’s 28 grams, for a ticket price of $125.70.
If this works for Hexo in Canada, it’s a strategy other companies will follow.
I’m not sure Hexo is the company that should be leading the charge – you can learn why in this report – but it’s a strategy I’m watching closely.
Cannabis in Canada
Morris W. asks: “With the slow rollout of retail stores in Ontario and higher prices than the illegal cannabis market, is there too much product for the Canadian market, compressing prices from growers?”
It seems impossible that a country, which had a massive cannabis shortage just a few months ago, now has too much cannabis.
But it’s possible.
There could be some short-term dislocations as Ontario gets its act together (and Quebec does the same), but I think that the Canadian industry should have a good 2020.
What leads to that conclusion? A few things.
First, Alberta and British Columbia seem to finally be opening enough dispensaries, and Quebec will double the number of stores next year. That’s no substitute for a fix in Ontario’s disastrous policies, but it will help.
Second, Canada 2.0 will bring exciting new products, which will put a dent in the illegal market. It will also have another impact that people aren’t talking about; a lot of lower-end cannabis will go into those products.
You don’t need a craft-grown cannabis plant with a high level of CBD and a great terpene profile to make a THC beer or a gummy – you just need the THC.
So some of the cannabis Canadians are smoking now, cannabis which has to compete with better products on the high end and the illegal market on the lower end, will be eaten by Canadians instead. And value-added products like vapes and edibles have historically been more resistant to price compression.
For all of that, prices of lower-end cannabis will come down in the next year in Canada. They’re already starting to come down. It will be important for producers to get their costs under control.
If a producer can grow cannabis for around C$1.20 per gram, it will have a profitable business model even in a price-sensitive environment as long as it also has value-added products.
The Difference Between Holding a Stock and Taking a Loss
Bob W. asks: “Why is it better to hold rather than take a loss and wait for a change? Why keep the losers in the active portfolios?”
It’s a great question, Bob. And there are two reasons.
The first is that we can’t know when things will turn.
The second is that historically, when this market turns, it turns very quickly. When the market turned up in August of last year, the NICI 50 Index increased by 28.8% in just two weeks and by 54% in one month.
A similar rise came at the end of last year to the beginning of this one.
Then, the NICI 50 increased by 33% in two weeks and by 48% in a month. Gains like those can’t be missed!
And we can be confident that gains like that and more are coming as long as we are confident in the long-term story about cannabis.
We are focusing on owning the best cannabis companies in the world – the ones whose gains in those kinds of markets will exceed the gains by lesser companies.
An Overview of the Cannabis Industry
Barbara P. asks: “What are your thoughts about the WHOLE cannabis industry in the U.S. and abroad at this time?”
Barbara, the long-term picture is the same as it has been for the past year, and the near-term picture is brighter than it has been in many months.
In fact, this venture capitalist expert just developed a strategy to show you a surefire way to spot companies that are ready to scale.
With Michigan and Illinois set to start recreational sales next year, the states in the Northeast are finally getting together to create a path to legalization, and the Senate is looking increasingly likely to pass a pro-cannabis banking bill.
The U.S. outlook is bright.
The CBD market will also continue to grow in the coming year, as FDA guidance allows new products to come to market. Canada is looking to have a better second year of legalization than the first, though it will continue to grow more slowly than it should because of government errors and a suspicious licensing process.
Internationally, the twin waves of medical cannabis and adult-use legalization continue to spread around the world.
And as they do, we’re going to see more and more companies break onto the scene. Deciding which of these companies to invest in and which are likely to go belly up requires some due diligence.
Which is why we teamed up with the leader of the American cannabis revolution Danny Brody. He gave us the lowdown on how he chooses which companies he believes will go gangbusters.
See how he made a multi-million-dollar fortune by asking himself these three questions before investing.
Executive Director, National Institute for Cannabis Investors
One response to “Companies Aren’t Waiting for the Government to Stop the Black Market”
October 26 2019