Cannabis in the news August 7, 2019

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News on cannabis stocks and on developments in the industry haven’t let up in today’s volatile markets. Here are this week’s stories that we believe will mean the most to you as a Canadian investor.

1.The Ontario securities commission has now opened an investigation into CannTrust following Health Canada’s discovery of unlicensed grow rooms.

Last week, the cannabis producer said the Ontario Securities Commission (OSC) has launched an investigation into “matters and parties related” to the company.”

According to the company’s press release, the commission’s Joint Serious Offences Team will lead the investigation. The OSC has now confirmed the probe, but is declining to provide any additional details.

The Joint Serious Offences Team is a partnership between the OSC, RCMP and Ontario Provincial Police that handles potentially serious violations of the law, according to the OSC.

The launch of the investigation comes after CannTrust shared news of a July Health Canada site inspection that turned up a number of unlicensed grow rooms in production.

As a result, 12,700 kilograms of cannabis was placed on hold and all of the company’s shipments and sales have been frozen.

2. CannTrust competitors are already expressing interest in the company’s assets on the heels of its regulatory troubles.

Certainly, Health Canada’s discovery of CannTrust’s unlicensed grow rooms has had a negative impact on the industry, Aphria CEO Irwin Simon told Bloomberg. Still, he said, CannTrust has “some great assets” and he “always looks for great opportunities.”

The comments point to the continuing drive by leading producers to expand their grow facilities and output. The opening of Canada’s cannabis edibles market, along with expanding international markets, should further spur merger and acquisition activity.

Still, that busy period of buying and selling will need to come to an end at some points, says Simon.

“At the end of the day, it’s about profitability, and shareholders want to see profitability,” he said. “It’s not just a black hole and spend, spend, spend.”

3. New Brunswick’s chain of government-owned cannabis stores continues to see its losses shrink despite a drop in sales.

Cannabis NB said it lost a steep $2.2 million in the first quarter of its current fiscal year. That’s a significant improvement over the $11.7 million loss for its first 24 weeks in operation last year. That period followed the Oct. 17, 2018, legalization of cannabis.

The smaller loss this year comes despite a drop in actual sales. Sales were an average $700,000 per week during the first quarter of 2019, says Cannabis NB. That’s down from the $784,000 per week last year.

The industry across Canada is expecting significant sales increases in the last quarter of 2019 as cannabis edibles become legal. The legal sale of those high-demand products—now relegated to the black market—is likely to spur revenue for both licensed retailers as well as provincial-owned online and bricks-and-mortar locations.

4. Big pharmaceutical companies are actively exploring the development of CBD products as a way of capitalizing on growing demand for that non-psychoactive compound found in cannabis and hemp.

While scientific research remains ongoing, CBD as cannabis extract is increasingly credited with relieving pain, anxiety and insomnia.

Pharma giants GlaxoSmithKline Plc and Pfizer Inc. have now merged their consumer drug businesses and are studying CBD for its medicinal benefits.

“The science is young in the space, but we realize it’s something consumers are using in their repertoire, so we are looking at it,” says Brian McNamara, CEO for the newly combined consumer drug business. “Whatever we do, we really want to make sure it delivers on the promise to consumers and delivers real benefit.”

While the benefits of most CBD-based products remain to be proven in tests, research firm Brightfield Group estimates the U.S. market will reach almost US$24 billion by 2023.

5. Alberta has now issued 254 retail cannabis licences, with another 491 applications still in the approval process.

Those numbers may only be the beginning, say industry insiders, suggesting the provincial market could ultimately bear as many as 1,600 pot stores.

“We still have to be very cognizant of supply but, so far, things are going well in supporting the licences we’ve issued,” says Chara Goodings, spokesperson for provincial regulator Alberta Gaming, Liquor and Cannabis Commission.

The province now has 31 licenced producers from across the country now under contract and is looking to add to their number, says Goodings.

“We’ve never stopped looking, we’ll always continue looking,” she says.

The faster approvals in Alberta has attracted more supply from growers, many of which are based in Ontario, says Nathan Mison, chairman of the Alberta Cannabis Council. It represents producers and shop operators.

“By opening so many stores here, licensed producers have been dedicating additional supply to Alberta,” he said, noting Ontario only has 23 operating cannabis stores.

If Alberta’s strong and diverse supply manages to keep prices down, it may be the best defense that the legal market has against black market sellers.


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