Cannabis in the news January 9, 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. Ontario has now begun to accept applications from businesses each looking to win one of only 25 retail licences to sell cannabis in the country’s largest province.

If chosen and approved for a Retail Operator Licence, applicants will be allowed to open only one store in a chosen region.

Ontario will use a lottery draw on Friday to choose from hundreds of applicants, including former operators of illegal dispensaries and established mainstream retailers, among other hopefuls. While the number of applications could even reach into the thousands, the province is holding firm to its plan to issue just 25 retail licences—at least initially.

Still this Friday’s draw does not necessarily guarantee that winners will be eligible to open a cannabis store on April 1. That’s when Ontario opens the sale of cannabis—now restricted to online sales through its own cannabis store—to privately run, bricks-and-mortar sellers. Those picked are subject to a “full due diligence process” conducted by the Alcohol & Gaming Commission of Ontario to determine if they, in fact, qualify for that licence.

2. Shoppers Drug Mart has now launched its e-commerce platform for medical cannabis. The move comes just a month after Health Canada licenced the company to sell the product online.

Product information is available nationally, but Shoppers Drug Mart can initially only sell medical cannabis to patients in Ontario.

Those users must also take a medical document similar to a prescription into one the chain’s pharmacies in order to begin the process.

Shoppers is also offering patients access to specialized advisers who will review their medical history and provide support with online registration and product selection.

The retail chain has also signed supply agreements with licensed cannabis producers of both dried cannabis and cannabis oil. In addition, its pharmacies will sell medical accessories.

3. Canadian producers are increasing taking on the role of venture capitalists, looking to support and profit from startups both here and abroad.

Canopy Rivers Inc. (RIV.V), the venture capital arm of Canopy Growth Corp., will now invest more than $3 million U.S. in Headset Inc. That Seattle-based firm provides data on the marijuana industry and tracks sales numbers in U.S. markets such as California and Colorado.

While Headset focuses on the U.S. cannabis industry, the Canopy Growth investment, among other funds raised in a private offering, will help the company expand its international operations. It should also help Headset develop data for the number of packaged-food, beverage and tobacco giants weighing their own participation in the cannabis industry.

Marijuana producers see industry investment outside of cultivation as key to further expanding their own product demand.

4. The appeal of possibly hundreds of millions of dollars in taxes on cannabis sales could ultimately sway the U.S. federal government to legalize the drug’s use, argues the head of one leading retailer.

“I think you could see a resolution between the conflict of federal and state laws in 2019 and that may be part of the conversation –  some sort of federal excise tax,” Curaleaf Holdings CEO Joe Lusardi told BNN Bloomberg. “It’s tax [revenue for] the state and it’s proven to be a big economic engine.”

The possibility of transferring some of federal coffers could speed up what many industry analysts call the inevitable loosening of a recreational marijuana ban. Such a move would also bring federal laws in line with the growing number of U.S. states that allow for cannabis use—medical, recreational or both.

“Colorado generated hundreds of millions in tax revenue off cannabis,” said Lusardi. That’s significant dollars that they didn’t have in the state coffers before they enacted an adult-use program.”

5. Industry insiders suggest that an apparent shortage of cannabis for both the recreational and medical markets could last as long as three years.

Provincial governments were among the first to voice concerns about supply challenges in the days following legalization on October 17, 2018. The approach to dealing with those shortages differs from one province to another, with Quebec deciding to close its government-run stores for several days a week.

While Alberta has opted to limit the number of new retail licences it issues, Ontario has capped its own number—for a province of more than 14 million—at 25 stores.

As of mid-December, about 50% of cannabis products listed for sale in five provinces was out of stock, according to one industry analyst.

The cause is likely due simply to demand that has dwarfed supply. While producers have now moved to ramp up cultivation, shortages could take up to three years to clear the pipeline, say experts.


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