Cannabis in the news January 30, 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 the stories that we believe will mean most to you as a Canadian investor.

1. Private sellers in Canada’s fledgling cannabis industry continue to grapple with supply shortages—something that has now forced one store to close its doors.

A privately-owned cannabis store in Newfoundland is closing, and the manager says supply issues are largely to blame.

Puff Puff Pass Headshop in Clarenville, N.L., is the province’s first private weed store to announce plans to close since recreational marijuana was legalized in October 2018.

It’s also one of just six private, regulated cannabis retailers in Newfoundland and Labrador.

The store’s management is blaming the province’s policy of capping the number of licenced producers a retailer can have. In turn, those suppliers have limited the supply made available to specific retailers.

2. Canada’s cannabis producers may increasingly look to Europe to expand their supply capacity and market share through mergers as well as acquisitions.

Finding similar target companies here in Canada is more and more difficult, according to the head of Organigram Holdings Inc. (OGI.V). In a phone interview with BNN Bloomberg Monday, CEO Greg Engel said the company is likely to pursue deals within Europe where the cannabis industry is beginning to take off.

Engel argues that it’s simply too difficult in Canada for producers to become large-scale pot growers given yield and other cultivation challenges.

Organigram did consider acquiring a “large-scale,” unspecified producer but held back given what it sees as those greenhouse difficulties cannabis growers face and the potential hit to its bottom line.

“We felt there would be a time where investors would shift to more traditional metrics, looking at margins, looking at EBITDA, and we wanted to be a leader in that regard,” Engel said.

3. Industry insiders say that large private U.S. lenders are now looking at Canada’s cannabis industry as a sort of testing ground for future investment opportunities in U.S. companies.

Those unspecified firms—including at least one fund with $100 billion in assets—are exploring the possibility of issuing loans to Canadian cannabis companies as a way to gain expertise in the market ahead of potential U.S. legalization.

The funds are “realizing it will become fully legal at some point in the U.S. and when it does, they need to be ready to invest,” Alfred Avanessy, managing director at Toronto-based brokerage Cormark Securities Inc., told BNN Bloomberg. “As part of their learning curve, they’re going to spend the next couple years with Canadian players, using Canada as a testing ground.”

Those funds remain largely shut out of direct investment in the rapidly expanding U.S. cannabis industry because the plant, its sale and its use remain illegal on the federal level.

4. The German government is now selecting small firms to licence as cannabis growers.

Under growers contracts, those producers will supply the German market with a total of 10,400 kilograms (22,928 pounds) of pot over the next four years.

The Federal Institute for Drugs and Medical Devices will make its final selections from 79 bidders by the end of June.

The country has relied on Dutch and Canadian suppliers since legalizing medical marijuana in March 2017. The goal now is to have the first local harvest produced before 2020.

That won’t close the door to Canadian suppliers, however: they and other foreign companies will still be allowed to sell into the German market after local producers emerge. Still, the country aims to focus on domestic development.

“It’s about ensuring the security of the supply,” said Maik Pommer, a spokesman for German’s drug agency. The contracts are being given out in 200-kilogram lots to make them accessible for small growers.

5. Police are concerned that licenced cannabis producers may increasingly opt to cultivate plants in excess of approved totals in order to supply the black market.

York Regional Police are the latest to lay charges stemming from the inspection of a licenced grow facility with significantly more pot under cultivation than it is legally allowed.

The 10,000-square foot facility is permitted to grow 1,752 cannabis plants. Police, however, found more than 6,000 cannabis plants in various stages of production. While they charged three people, none is an actual licence holder.

“These investigations raise significant concerns, as there is once again a blatant disregard for licensed grow limits,” York Regional Police Chief Eric Jolliffe said in a release. “Since the legalization of cannabis on October 17, 2018, the increasing demand is creating additional opportunities for organized crime to be a supplier.”

Police are concerned organized crime is looking to exploit Access to Cannabis for Medical Purposes Regulations. Those federal rules allow designated growers to pool up to four grow licences per address and turn one production site into a cannabis farm.


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