In the cannabis space this week, turmoil continued due to changes in Ontario’s delivery and curbside pickup rules. But there was positivity for Canada as a whole, with sales hitting a new record in May.
Meanwhile, analysts from CIBC released their Q2 market commentary, picking out several important trends for marijuana-focused investors to watch.
Read on for a closer look at some of the biggest cannabis news over the last five days.
Cannabis trends to watch from CIBC
CIBC analysts John Zamparo and Seth Rubin published their latest quarterly update on the cannabis space this week, covering the industry’s main trends in great detail.
The report is extensive, but here’s a brief rundown of three key points they highlighted:
- Cannabis beverages facing headwinds — According to the analysts, while cannabis beverages are becoming more popular and easier to get ahold of, there are still major roadblocks to widespread consumption. For example, in order to begin displacing alcohol, these beverages would need to be available in place like bars and liquor stores; limitations on marketing, potency and transaction size “make things even more difficult,” they said.
- Adult-use legalization likely in more US states — Zamparo and Rubin said the American political landscape has changed significantly since their Q1 cannabis note. They now think a second term for US President Donald Trump is “highly unlikely,” and believe a Republican Senate “is currently even odds at best.” In their opinion, “This is incredibly constructive for America’s cannabis industry.” And regardless of who wins the election, they expect more states to legalize adult use.
- Revisiting the Aphria/Aurora deal — Finally, the duo touched on the recent failed merger between Aphria (TSX:APHA,NASDAQ:APHA) and Aurora Cannabis (TSX:ACB,NYSE:ACB). They think the talks could be revisited in the future, and said that such a transaction “would create an undisputed Canadian market leader with market share over 30%.”
For more on what happened in the cannabis space during Q2, click here to read the Investing News Network’s update on the quarter.
Marijuana restrictions could weigh on Ontario economy
Ontario’s cannabis sector has been in focus for the last couple of weeks due to multiple changes to the province’s policy on delivery and curbside pickup for private stores.
Private stores in Ontario had been allowed to provide those services since April due to a temporary emergency order from the provincial government. But earlier this month, news hit that private stores in the province would soon no longer be able to offer those options.
In the weeks since then there has been confusion about the exact date that delivery and curbside pickup would have to halt. The latest information available indicates that Thursday (July 23) was the last day.
Click here to skip to the Investing News Network’s overview of the situation in Ontario.
Now, the Ontario Chamber of Commerce (OCC) has said that if the province’s 100 or so private cannabis stores can’t offer delivery and curbside pickup, Ontario could take an annualized C$180 million hit in economic activity. The impact could rise to a whopping C$990 million over a year-long period if the 449 stores whose applications are still in progress are accounted for.
In a letter to Ontario Finance Minister Rod Phillips, the OCC, along with members of the cannabis industry, asked the province to consider making the changes permanent instead of ending them.
Along with potential losses in revenue mentioned above, the OCC also points to increased black-market buying and job losses as reasons the decision should be reconsidered.
May a record month for Canadian cannabis sales
Despite the turmoil in Ontario, new data shows that Canadian cannabis sales hit a record in May.
Information from Statistics Canada indicates that total sales for the country came in at nearly C$186 million for the month. The previous record of just over C$181 million was set in March.
Commenting on the data, Prohibition Partners said that sales in Canada totaled C$850 million for the first five months of the year, meaning that sales could surpass C$2 billion for the entire year.
“Since cannabis was legalised in Canada in October 2018, the contribution of legal cannabis to the country’s GDP (which takes into account domestic retail sales, investments, inventories and the balance of trade) has increased four-fold and currently represents 0.26% of Canada’s GDP, valued at CAD$4.3 billion,” states the data-focused market analysis firm.
Alberta accounted for 25 percent of May sales, said Prohibition Partners, even though it only represents 12 percent of the country’s population. Ontario, which accounts for 38 percent of the population, brought in 22 percent of sales. Hiccups in the store approval process have limited Ontario’s reach.
Cannabis company news
News in the cannabis space this week ran the gamut from quarterly results to M&A activity.
- Aurora Cannabis announced in an internal memo that it will be downsizing its European operations, closing offices in Portugal, Spain and Italy; it will also reduce its European workforces by one-quarter in select countries and its regional office. According to BNN Bloomberg, which obtained the memo, the company’s decision was based on the fact that some European medical markets have not developed as quickly as hoped.
- Curaleaf Holdings (CSE:CURA,OTCQX:CURLF) completed its acquisition of GR Companies, a move that it says makes it the largest cannabis company by revenue and the most diversified vertically integrated cannabis company in the US. Speaking to BNN Bloomberg, Executive Chairman Boris Jordan said he anticipates US$1 billion in revenue next year, up from US$221 million in 2019.
- Alimentation Couche-Tard (TSX:ATD.A,TSX:ATD.B,OTC Pink:ANCTF) is increasing its stake in Fire & Flower Holdings (TSX:FAF,OTCQX:FFLWF) to about 15 percent, up from around 10 percent previously. Couche-Tard is exercising some of its Fire & Flower warrants, and could ultimately gain a majority stake in the company if it exercises all of its warrants.
- Organigram Holdings (TSX:OGI,NASDAQ:OGI) released its latest quarterly results, reporting a 27 percent year-on-year decrease in net revenue to $18 million. It also recorded an adjusted EBITDA loss of $24.7 million, down from positive adjusted EBITDA of $7.7 million a year ago. In a note, Raymond James analysts admitted they had been overly optimistic about the company and reset their expectations. They still see a “solid path forward” for Organigram.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.