As Canada gets closer to the legalization of recreational cannabis, many experts have debated the supply and demand relationship for the legal product the market will produce.

Observers of the industry have noted that licensed producers (LPs) have failed to disclose information on a material level as far as size of inventories in grams produced.


“Unfortunately, not all of the LPs are reporting the size of their inventories in grams, with the three largest LPs in terms of the dollar amount of inventory silent on the issue,” Alan Brochstein, cannabis analyst with 420 Investor, wrote in a column addressing the shortage.

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 

With legalization looming, here the Investing News Network (INN) provides an overview of some of the most recent opinions on the projected shortage facing the Canadian cannabis market.

Brochstein cautioned excited investors by arguing that a slow-to-start distribution network combined with limited inventory may lead to a “large initial imbalance between supply and demand.”

He wrote, “[i]f one assumes the demand among 6 [percent] of the population to be 1 gram per day, another 6 [percent] consumes 5 grams per month and 15 [percent] consume just a gram per month, the annual demand based on 36 million residents would amount to 982 million grams in a mature market.”

Brochstein also warned investors that although the Canadian market resembles the state of Colorado during 2014, there are “relatively few large-scale cannabis producers in Canada today.”

Voices denying the shortage claims

In December, Vice News reported on an unpublished study from Health Canada showing that the discussed shortage won’t manifest itself as indicated by other studies and predictions.

Miles Light, co-founder of the Marijuana Policy Group, told Vice News the analysis done by his firm shows it is “very unlikely” for an acute shortage of legal cannabis. The projections from Light indicate there will 500,000 kilograms of “flower-equivalent” product ready to be sold.

“Light claims the misconception around weed supply is a failure to recognize how large and well-financed Canadian licensed producers are,” Vice News wrote.

Last year, as concerns grew that a shortage would cause medical patients to miss out on cannabis product, Health Canada quickly issued a response denying patients were short on medicine.

Prominent CEO not worried about oversupply of legal cannabis

Chuck Rifici, CEO of Cannabis Wheaton Income (TSXV:CBW), said during an investing panel at the Lift & Co. Expo in Toronto in May that he believes every legal gram produced in Canada for at least the next five years will be sold.

“I’m not really worried about oversupply, and five years in cannabis years is a lifetime,” Rifici told the audience as the question of potential oversupply came up during the panel.

When asked about the cannabis public market landscape for mid- and small-market-cap companies, Aaron Salz, CEO of Stoic Advisory, told INN it is clear for him that oversupply is coming to the space.

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 

“In our model, we have 2 to 2.5 million kilos of funded capacity, Salz said. “In Canada, at its absolute peak, they only demand a million kilos, years from now.” He continued, “I think for a lot of these companies, from the mid to small caps, start to think ‘how do we actually differentiate our strategy.'”

Could a shortage lead to lack of medical product?

In April, CBC reported on a new research effort from the C.D. Howe Institute warning the Canadian federal government that its efforts against the black market won’t be enough.

“The clear economic logic is that so long as there is demand beyond what the legal industry can supply when new legislation takes effect … a market supplied by criminals will continue to exist,” CBC wrote.

Rosalie Wyonch, economist and policy analyst with the C.D. Howe Institute, said the main concern for the federal government should be supply. She also told CBC there is concern for medical product supply from legal producers in Canada.

“There’s nothing to incentivize producers to prioritize medical consumers, and in fact because of contractual arrangements to supply retail stores, they may actually be incentivized to supply the recreational market over the medical market,” Wyonch said.

During an interview with INN last year, Neal Gilmer, equity research analyst with Haywood Securities covering the cannabis public space, said he expected to see Health Canada step in and implement some sort of protection for medical patients.

“That’s just my expectation, I haven’t seen anything in writing anywhere,” he told INN in July.

Don’t forget to follow us @INN_Cannabis for real-time news updates! Stay tuned to our cannabis channel for more stories from Lift.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 
Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 

Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

Cannabis - Will The Fortune 500 Join The Party?

 
Our Exclusive FREE Report Contains Information You NEED To Know About Cannabis Stock Investing!
 

While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

Keep reading... Show less

 Trulieve Cannabis Corp. (“Trulieve” or the “Company”) (CSE: TRUL) (OTC: TCNNF), a leading and top-performing cannabis company in the United States will release its first quarter 2021 financial results on Thursday, May 13, 2021 before markets open. Following the earnings release, management will host a conference call at 8:30 AM Eastern Time to review the financial results.

All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

Keep reading... Show less

Appointment of Dr. Kelmendi, Assistant Professor of Psychiatry at Yale University and co-founder of the Yale Psychedelic Science Group, brings another experienced medical professional to Lobe’s advisory team.

 Lobe Sciences Ltd. (CSE: LOBE) (OTC Pink: GTSIF) (“Lobe” or the “Company”) is pleased to announce the appointment of Benjamin Kelmendi, MD, Assistant Professor of Psychiatry at Yale University School of Medicine, to its Scientific Advisory Board.

Keep reading... Show less

Ayurcann Holdings Corp. ( CSE: AYUR ) (the “ Company ” or ” Ayurcann “), a Canadian extraction company specializing in the processing of cannabis and hemp for the production of oils and various derivative products, is pleased to unveil further details of its Phase 2 expansion plans.

Ayurcann has commenced trading on the Canadian Securities Exchange (” CSE “) on April 8, 2021 and subsequently announced a private placement of up to $500,000 (” Financing “), as per the Company’s press release dated April 12, 2021. The proceeds of the Financing are intended to be used to further pursue Phase 2 of the expansion of the production capacity of the Company’s Pickering facility.

Keep reading... Show less