‘Cannabis 2.0’ kicks off
But industry strangled by limited retail outlets
A year after Canada legalized use of recreational marijuana, cannabis stocks have lost half their market value, and investors betting that the launch of highermargin pot-infused drinks and other products will quickly lift shares may be in for a bumpy ride.
So-called cannabis 2.0 — legalization of marijuana derivatives including edibles, beverages, extracts and vape pens — took effect on Thursday, with sales seen beginning in mid-december. While that is expected to help sagging share prices, the crucial factor for a turnaround is a significant increase in the number of stores selling the products, investors, companies and analysts said.
Share prices in the Horizons Marijuana Life Sciences Index ETF have slumped as companies’ revenues missed expectations. Cannabis producers, investors and analysts have blamed Canadian regulations that have slowed the opening of new retail outlets, strangled sales and imposed higher costs.
Investment bank and advisory firm Seaport Global figures Canada needs about 1,055 stores to realize the cannabis market’s true potential.
About half that number currently exist, with about 300 of those stores in Alberta, which has looser regulations than the rest of the country, while the most populous provinces of Ontario and Quebec have lagged far behind.
“We would probably give the first year a C-minus,” said Seaport Global analyst Brett Hundley, giving the industry performance a barely passing grade.
The slow roll-out of stores “creates a real problem for Canadian licensed producers, because they’ve expanded rapidly with cultivation and production facilities and have nowhere to go,” he added.