Current scenario in the industry
One year on since legalization of recreational cannabis in Canada, the assessment is that a lot needs to happen. On the one hand, the market seems to have failed to pick up, at least not according to what enthusiasts expected. Across the board, there seems to be a consensus that the government needs to do more especially in terms of licensing more stores.
According to industry experts like David Soberman, who is also a professor at the University of Toronto, licensing more retail stores will help to solve many issues, including pricing and quality of the product. Notably, some provinces that have a high population of consumers have few retail stores and that is hurting business. For instance, Ontario has the lowest retail store count but boasts a huge population of consumers. After legalization in October 2018, it was not until April 1 that the first legal store opened in the province.
The current scenario in Ontario is still bleak in terms of licensed retail stores. As at August 2019, only 23 stores were operating legally in Ontario. Interestingly, more than 100 stores are awaiting the licenses to operate. Meanwhile, the black market is thriving. According to a Statistics Canada survey, close to 47% of users obtain their pot from illegal sources. Analysts estimate that this number could be higher that reported, assuming that many people would not want to divulge such information. Additionally, there are illegal stores that operate in the open hence falsely thought to be legal.
New growth opportunities
Despite the challenges, the legal pot industry is chugging along. Sales continue to grow across the board, according to official government data. Notably, the sale of dried cannabis peaked at 12,917 kilograms in August 2019. Similarly, the sale of cannabis oil reached 11,705 liters during the same period. According to Soberman and other industry watchers, higher prices of legal cannabis is the major impediment to higher sales. Interestingly, this can only be achieved through licensing of more stores to increase competition.
The likelihood of the industry turning towards higher levels of growth is more certain today. Notably, industry players are increasing their lobbying activities with the hope that the government will offer more support. In a recent appeal to the Prime Minister, the Cannabis Council of Canada pleaded with the PM to address challenges such as the national stamp, the medical tax, and the illicit market. Other issues that the council highlighted include licensing, export blueprint, and banking.
Some growth in cannabis stocks is apparent
For much of 2019, cannabis stocks in Canada have underperformed. Particularly, the poor run arose from various challenges that faced the industry in the first few months of existence. Some of the challenges include supply shocks, licensing issues for producers, suppliers, and retailers, and the persistence of the illicit market. In March 2019, the Canadian Marijuana Index clocked 711, the highest level year-to-date. However, the index tumbled significantly through the months to November 18 when it dropped to 197.30.
Source: The Marijuana Index
Nevertheless, the market is now picking up. Since November 18, the index is up 25%. For individual stocks like Chemistree Technology Inc. (CHM: CNX), the possibility of better performance is certain. Like many Canadian pot stocks, Chemistree opened the ye ar 2019 on the higher side. In April, the company registered the highest stock price year-to-date but later tumbled more than 83%. However, the stock is up 4.35% or $0.01 CAD at the time of writing. This evidence enough that the value of the stock could be higher by the close of 2019.
In particular, industry watchers draw their confidence for better prospects in the industry from various positive developments. First, the appeal by the Cannabis council will be a major morale booster if the PM will address it. Second, more licenses for new retail stores across the country are coming out, increasing the consumers’ access to the product. Ultimately, the cannabis industry should see more growth going forward.
