Canadian cannabis stocks endure difficult week

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This article was published 15/11/2019 (1623 days ago), so information in it may no longer be current.

Canadian cannabis stocks had a no good, terrible, very bad end to their week.

Ontario-based Canopy Growth Corp., which operates two Tokyo Smoke and one Tweed locations in Brandon, posted a net loss of $374.6 million for its second quarter.

On Monday, Canopy Growth’s stock price opened at $27.70 and plunged to $20.29 by the end of trading on Friday afternoon.

Stocks of other industry heavyweights fell between 15 and 28 per cent in value during that same time.

Other companies that have been hit this week were Aphria Inc. (down 15.3 per cent), Hexo Corp. (down 23 per cent) and Aurora Cannabis (down 27.6 per cent).

“At the risk of oversimplifying, the inability of the Ontario government to license retail stores, right off the bat, has resulted in half of the expected market in Canada simply not existing,’’ Canopy CEO Mark Zekulin said Thursday.

While Canopy Growth laments its inability to expand into Canada’s most populous province, locals on area social-media platforms have wondered if Brandon, which currently has five cannabis stores with a sixth on the way, might have too many for a city of this size to support.

However, an industry analyst told the Sun this week that Brandon has close to the ideal ratio of stores to population.

Chris Damas, president of BCMI Cannabis Report, a cannabis-investing newsletter for North America, said the market can generally sustain a ratio of one store per 10,000 people.

As Brandon has approximately 50,000 people and approximately 60,000 in the metropolitan area, this would suggest the city has hit its limit for cannabis retailers.

But for Canada as a whole, Damas said there is lots of room to expand. He said there are approximately 650 cannabis retailers in Canada, and the ideal number would be closer to approximately 2,750.

The Sun asked the Liquor, Gaming and Cannabis Authority of Manitoba on Friday if there were plans to issue more business licences for rural cannabis retailers.

A spokesperson said they have not heard from the government about expansion plans since the last series of rural licences were issued via lottery earlier in the year.

There are currently 27 cannabis retailers in the province, with 14 of those being in Winnipeg alone.

According to Damas, Manitoba is one of three provinces that are handling cannabis the best, alongside Alberta and Saskatchewan.

The reason for this, he said, is because those three provinces allow private companies to sell cannabis rather than the provinces controlling sales with a monopoly.

Saskatchewan is even better, according to Damas, because they allow producers to sell directly to retailers rather than going through a provincial wholesaler as a middleman.

New Brunswick has a government monopoly, but announced this week it is taking sales private after disappointing sales results since legalization.

Damas believes that eventually all provinces will end up going this route. He thinks it’s for the best, as he feels that private businesses will be better at making profits than provincial governments.

As for Ontario, Jenessa Crognali, a spokesperson for Ontario’s attorney general, deflected the blame toward the federal government, saying it rushed to legalize recreational cannabis without ensuring there was enough supply to meet demand.

“As a result of the federal government’s failure, the market grappled with a federal supply shortage that only began to show signs of improvement in the past few months,” Crognali wrote in an email to The Canadian Press.

A spokeswoman for Minister of Border Security and Organized Crime Reduction Bill Blair said the federal government is committed to working with provinces and territories on the cannabis file.

“While some provinces are making considerable progress in offering adults a safer alternative to the illegal market, others still have work to do establish their wholesale and retail distribution systems and better protect Canadians,” said Marie-Emmanuelle Cadieux in an email.

» cslark@brandonsun.com, with files from the Canadian Press

» Twitter: @ColinSlark