How do Canada’s crumbling cannabis stocks impact Missouri?
Nearly one year into the recreational marijuana market in Canada and cannabis companies are seeing stocks plummet. Canadian companies like Aurora (ACB), Canopy Growth Corporation (CGC)(WEED), and Tilray (TLRY) have been the backbone of big cannabis, but over the last 6 months, they’ve lost over 60% of their value.
How does that impact Missouri?
Realistically, it shouldn’t, and here is why:
Canada is in the midst of a retail crisis, nationwide Canada has roughly 500 dispensary locations – in contrast, Colorado alone has nearly 400.
So while these market-leading producers continue to build out and reinvest into their companies, Aurora Cannabis has publicly stated plans to expand its production capacity from 150,000 to 500,000 kilos per year by mid-2020. Additionally, Canopy Growth is on track to produce over 500,000 kilos of cannabis per year.
Two companies alone set to produce a combined 2.2 million pounds of marijuana.
Yet Aurora is investing millions of dollars into farms and greenhouses while hemorrhaging money. In Q3 2019 alone the company lost $160 million. In the same time period, Aurora grew only 15,600 kilos utilizing less than 1/3 of its already operational facilities.
So why continue to expand and build more?
Aurora Cannabis’s most recent financial report shows revenue grew 52% in the last fiscal quarter over the previous quarter. But Aurora’s big sales boost is in “wholesale.” So while Aurora generated $20 million, it did so by undercutting market prices and liquidating its stock of marijuana. This represents an 869% increase from the previous quarter, all of which sounds great on the surface but overlooks one glaring detail, Canada lacks a consumer demand.
Meanwhile, in the U.S. many companies in new or emerging markets are overwhelmed with consumer demand, and as markets evolve and expand more unique opportunities arise.
In Missouri our medical marijuana market is on the cusp of full licensing, but even before the first license is awarded Missouri has already trounced conservative market estimates.
The University of Missouri Market Study predicted 19,000 patients statewide by the end of 2020. Meanwhile, Missouri will approve its 20,000th patient in October – just 4 months after beginning to accept applications for medical marijuana patients.
Even among other U.S. markets Missouri’s program has proven to be the nation’s most patient-oriented program. With more access available than almost any other state with 192 dispensaries required to be licensed at launch and a constitutionally required minimum of 60 cultivation facilities licensed to ensure a steady supply as the industry ramps up. Additionally, Missourians benefit from one of the most user-friendly sets of laws for home cultivation.
Missouri’s home cultivation guidelines included in Article XIV establish a replenishable 90 day supply possession limit – while also allowing the patient or caregiver to keep a rotating supply perpetually growing. And while Missouri officials and DHSS have both been outspoken about the importance of compliance Missouri’s standards have proven easy for most patients to meet.
Missouri’s medical marijuana industry will face problems, but it appears Missouri’s greatest problem may end up being the ability to maintain supply rather than an overabundance as has been previously predicted.
Early next year a spattering of facilities around the state will begin to open their doors, with cultivation facilities the biggest question will be how quickly can a crop be harvested, but for dispensaries, we see two different issues on the horizon.
How quickly can a dispensary begin to provide product, and more importantly – how long can they sustain supply?
Being first to market will be a huge boon for dispensary businesses, especially in competitive or highly traversed areas. But if a company first to the market dispensary is unable to maintain its supply it will force patients to abandon any established brand loyalty and the company will forfeit any market recognition and goodwill garnered from being first to market.
But overcoming early obstacles and ensuring reliable fulfillment and supply will garner businesses lifelong medical customers, many of whom will maintain a relationship with their medical facility even into a recreational or adult-use market.
So while an overabundance of the product coupled with a congested pipeline to disburse has seen revenue and profitability in Canada tumble, Missouri’s market is set to grow rapidly and exceed all early expectations.
Canada’s biggest companies are playing a shell game, moving money and assets and reinvesting in unneeded infrastructure as a means to mitigate losses. It won’t be until a fully legal recreational marijuana program exists nationwide in the US that those companies will be able to use their full resources. Even then, no guarantee exists that federal authorities will allow cannabis to be imported from other countries, as the US already has a solid footing with no need to bog down our markets with untested, potentially harmful products.
While the stock market indicates that marijuana and cannabis may be sliding, independent and privately owned businesses are reporting record numbers in the US and are exhibiting unprecedented growth in some areas.
This month Oklahoma reached a milestone as 5% of their adult population now has a medical marijuana card. Meanwhile, leadership in both key political parties sees the need for banking reform and federal standards and guidance, In September the first piece of marijuana reform legislation passed out of the House and was sent to the Senate. CBD has carved out a multi-billion dollar market in the health sector, and hemp is quickly becoming the go-to agriculture commodity. It’s a good time to be in the cannabis business, but perhaps not the best time to invest in Canada.
