The last week’s headlines about the sector’s earnings reports offered a variety of descriptors, all of them depressing. The “brutal” week was a “bloodletting,” a “bloodbath,” a “sea of red,” a “flameout […] almost as bad as the dot-com bust.” The Canadian market “continues its downward spiral,” “the [cannabis] space could be the penalty box,” and “The Pot stock bubble has burst.” As for companies struggling to make it, “Some of these guys are going to disappear.”
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- More than a dozen companies reported quarterly results last week, and half reported continued losses. In a massive selloff, the top five companies in the sector (Canopy, Aurora, Aphria, Tilray, and Cronos) lost a combined $5B in market capitalization.
- A Raymond James analyst told Bloomberg, “The Canadian market is not big enough to warrant [multi-billion-dollar] valuations, particularly of the big five [producers].”
- Stock prices are driven almost entirely by retail investors. One US LP owner complained the “Canadian retail investor is a fickle, ignorant investor that doesn’t really understand what they’re investing in.”
- Last week, trusted cannabis-news specialty website The Leaf News was shuttered, another bad omen. Winnipeg Free Press
Cannabis sales volumes have grown by only 5.6% in the past quarter, while the number of products on the REC market grew by 20%.
- Ernst & Young cannabis manager Ashley Chiu suspected LPs convinced regulators to allow them to price legal REC far higher than illicit REC because they counted on excitement about legalization lasting longer than it did.
- REC prices declined 2.3% between January and October.
Everyone agrees Ontario’s inability to get REC stores open has been a blow to the fledgling legal market. Canopy CEO Mark Zekulin said, “Ontario represents 40% of the country’s population yet has one retail cannabis store per 600,000 people. […] The addressable market is nearly half what is expected.
- Health Canada advertising regs make it nearly impossible to market cannabis—or sell potentially lucrative cannabis ad-space.
- A Concordia University economics professor argued a chief reason for the increasingly dire rollout is not just the system of provincial monopolies, but also the monopsony-model of provincial wholesalers buying on behalf of entire provincial markets.