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. Canada’s leading producers continue their buying spree, with Tilray the latest to sign a deal set to double its potential output.
Under the agreement, the Nanaimo, B.C.-based company will pay up to $70 million for Natura Naturals Holdings Inc. and its 61,500-square-metre greenhouse cultivation facility. Only about 14,400 square metres of that is now licensed to produce cannabis.
Similar acquisitions before and after the legalization of marijuana last October have helped to spur industry stocks. Those deals are focused on upping production for the leading producers and Canada’s overall supply for both its recreational and medical markets.
Tilray will pay $35 million—$15 million in cash and $20 million in stock—when the Natura deal closes. The total purchase price could reach $70 million if Natura hits certain quarterly production targets during the first 12 months. Those additional payments would be in Tilray shares.
2. The heads of Canada’s leading cannabis firms are set to represent the rapidly expanding industry at this year’s World Economic Forum in Davos, Switzerland.
The forum, which draws the elite of the global business world, will hold its first-ever “Cannabis Conclave.”
That event centres on a three-hour lunch set to bring together cannabis producers, lawmakers and corporate leaders from outside the industry. Among the scheduled speakers is former Israeli prime minister Ehud Barak, who now serves as chairman of the Israeli medical cannabis company InterCure. Canopy Growth CEO Bruce Linton will also address the gathering.
3. Canada may grapple with cannabis supply shortages for another five years or more, according to a leading industry consultant, pointing to coming added demand from producers of “edibles.”
RavenQuest BioMed CEO George Robinson estimates that the country’s marijuana producers will need to grow as much as 6 million kilograms of cannabis annually in order to meet the domestic demand for dried flower, edible products and other extractables after edibles become legal in October of this year.
“It’s the elephant in the room that no one is talking about,” Robinson told BNN Bloomberg. “What are we going to do when we need to start extracting [cannabis] material?”
Canadians, in fact, bought $54 million of marijuana from stores last November—the first full month after legalization on October 17, 2018.
Robinson, one of the country’s first cannabis consultants, has worked with 13 of Canada’s top pot producers. He was also recently appointed as interim CEO for Bonify Inc. That Winnipeg cannabis producer recently came under scrutiny for selling unauthorized cannabis to legal stores in Saskatchewan.
Robinson replaces the company’s top executives and is working to restore the confidence of regulators.
While Canada plans to legalize edible and extractable cannabis products such vape pens by this October, demand for recreational product has exceeded supply. The gap between supply and demand has led to temporary shutdowns and layoffs at retailers across Canada.
Robinson argues that the duration of the cannabis shortage has been underestimated. Those forecasts, he says, have failed to take into consideration the amount of cannabis biomass needed to meet the expected demand for edible products, including oils and cannabis-infused foods.
4. Canadians and other travelers caught entering the country with cannabis could soon fact hefty fines, according to the Canada Border Services Agency.
Those travellers bringing even small amounts of marijuana into Canada also face criminal charges under existing laws that are meant to stem the flow of black market product into the now-legal cannabis market. Even with fines, the threat of legal jeopardy will remain in place.
Since October 17, adults in Canada have been allowed to possess and share up to 30 grams of cannabis. However, bringing pot into the country continues to be illegal, carrying a penalty of up to 14 years in prison.
Details of any plan to add cannabis-specific fines are still being drafted. The agency could release them as early as 2020.
5. Philip Morris International has no immediate plans to follow the lead of competitor Altria with its own investment in the cannabis industry.
The company’s CEO, André Calantzopoulos, points to high levels of uncertainty associated with differing regulations across the globe. Because international regulators were adopting different approaches to the drug, there could be logistical and reputational risks, he said.
“We need better scientific understanding of [cannabis],” he told the Financial Times at the World Economic Forum in Davos. “We need to remember that we are operating in an international environment with different [policy] approaches.”
Philip Morris’ main competitor has taken a different approach. Last year, Altria agreed to take a 45% stake in Cronos for $2.4 billion. Alcohol giants Constellation Brands and Molson Coors have also invested billions in the industry in an effort to counter stagnant sales for their core business.
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