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 most to you as a Canadian investor.
1. The upcoming legalization of cannabis edibles this fall is raising questions about how much of Canada’s marijuana crop will get diverted from the production of cannabis for smoking and vaporizing.
“I’ve got ‘x’ amount available which can give me ‘x’ amount of extract, how am I going to sell that?” Trisha LeBlanc, national cannabis industry leader at Grant Thornton LLP, told the Edmonton Journal. “Am I going to sell that as oils or am I going to sell that as edibles? And if edibles are going to be a much higher margin than oils, well, maybe I’m going to decide that isn’t where I’m going to put my ingredients.”
They are decisions that both large and small producers are now grappling with as they try to anticipate how consumer demand will shift following legalization of the edibles market. That change lets authorized retailers sell candies, baked goods and drinks infused with cannabis.
In the first U.S. state to legalize recreational cannabis, Colorado, edibles (and concentrates) claimed about 30.5% of the overall market in 2015. That had jumped to 36% of total sales by 2017.
Canada’s industry can expect even high demand for edibles, say some industry players. Still, producers will likely have months to decide how much of their output to devote to the new edibles market.
It could take up to one year for edible products to actually hit the shelves, argues Leblanc. “That’s because even once the regulation comes out, we still have to wait for licensing, and what the government has indicated is that it’s going to take a minimum of 60 days before anybody can get a licence.”
2. A leading cannabis producer will now study the benefits of cannabis for athletes looking to speed up recovery after exertion.
Aurora Cannabis has signed a multi-year partnership with mixed martial arts organization UFC to study how cannabidiol (CBD) products affect athlete wellness and recovery.
The clinical studies will specifically look at what if any benefits CBD has in terms of pain management and the treatment of inflammation and injuries. and exercise recovery, as well as mental health. The research will take place at the UFC’s Performance Institute in Las Vegas and will be led by Dr. Jason Dyck, an Aurora board member, professor at the University of Alberta, and a Canada Research Chair in Molecular Medicine.
3. A leading cannabis producer is facing opposition for an activist investor worried its plans to acquire a smaller competitor prematurely limits shareholder value.
Shareholders of Acreage Holdings Inc. (ACRGF.PK) are scheduled to vote on Canopy Growth Corp.’s (WEED) planned acquisition of the B.C.-based company focused on cultivation and processing cannabis.
Marcato Capital Management, which holds Acreage shares, has said it will vote against the deal because it undervalues the New York-based company. The activist investor argues that the value of most cannabis firms will soar with U.S. legalization and any sale of Acreage ahead of that will prevent the company from unlocking that value.
“It is highly imprudent for Acreage to sell itself today at the proposed valuation,” writes Marcato, “with so much unlocked growth and value embedded in the company.’’
The activist’s opposition hints at future pressure from activist investors as the industry further consolidates.
4. A new report on the U.S. cannabis industry points to strong job growth across all facets of the business as a growing number of states move to legalize medical and recreational use.
The industry added more than 64,000 jobs in 2018, according to the 2019 Cannabis Jobs Count survey by cannabis information hub Leafly’s. It now counts more than 211,000 full-time workers in the U.S. directly employed by the industry. That’s a 44% increase, which will further rise this year with the expected addition of 20,000 more job in California and Florida.
Florida added the most jobs of any state in 2018, with its medical marijuana contributing more than 9,000 jobs. That increase reflects the growing number of medical cannabis patients, which rose from roughly 65,000 to 165,000 over the same 12 months.
5. Cannabis producers in B.C. say they continue to wait for federal approval to grow their crop outdoors, although at least one farm has already received the greenlight.
Health Canada has now granted Good Buds on Salt Spring Island, B.C., a production licence that includes outdoor cultivation. That kind of cultivation should allow the company to significantly cut its production costs, say analysts.
Canadian regulators approved outdoor cannabis production in June 2018 after previously limiting it to indoors. The earlier restriction was meant to prevent theft and ensure quality control.
Since then, several major cannabis companies have announced plans to grow tens of thousands of kilograms of marijuana outdoors in order to cut production costs to as little as $0.03 per gram.
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