Village Farms Decides To Disrupt The Low-Cost High-Volume Side Of The Cannabis Market

Bottom Line: We think Village Farms decision to roll out a large format, low-cost flower offering to the market is going to be bad news for every other Canadian LP. Village Farms has the lowest growing costs among greenhouse operators and will likely gain even more market share from the likes of Canopy, Aurora, Aphria and others.

mj - marijuana joints

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The Coronavirus Is Straining Cannabis Supply Chains

Bottom Line: Using retail store inventory data from Headset.io we looked into some of the supply issues cannabis companies may soon face from COVID-19. If cannabis sellers aren’t able to restock vape equipment, packaging or labels they may be unable to meet demand in the near term.

cannabis / marijuana supply / greenhouses - mj

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An Infographic on COVID-19’s Impact On Cannabis

Bottom Line: A very helpful infographic from THC Regs laying out the demand impact COVID-19 is having on different cannabis formats state by state.

marijuana / cannabis / weed / pot / dagga - mj

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Daily updates on the Coronavirus and its effects on Cannabis Markets

Bottom Line: A useful article to check daily tracking the Coronavirus’s impact on U.S. cannabis markets.

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Germany Cannabis Sales up 67% in 4th Quarter

Bottom Line: German sales are running at C$193 million dollars or only about 9% of sales in Canada. Growth of 67% means Germany is quickly becoming a legitimate market for Canadian exports, though with competition heating up we wonder if the company’s already exporting to Germany can maintain their market share.

 

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Charlotte’s Web 4Q Earnings Miss Big – What’s The Plan?

Bottom Line: Charlotte’s Web’s Q4 earning were disappointing and missed analysts’ expectations. The company has stubbornly refused to drop prices on CBD products while the industry is in a price war. Management has not been clear about its strategy to get revenue growing again.

cannabis / marijuana supply / greenhouses - mj

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Weekly Stock Performance

Overall, it’s been a fantastic week for the cannabis sector. Globally, cannabis stocks were up 32.04%. The U.S. cannabis market was up 35.47% and the Canadian sector was up 22.34% since the end of last week.

We’ve been watching the performance of U.S. and Canadian stocks closely and U.S. stocks are still where you want to be invested.

Since the end of September 2019, U.S. cannabis stocks are down 54.4% while the Canadian LPs are down 56.6%.

Investors should BEGIN, begin being the keyword, a long-term position in a basket of the top five U.S. operators, especially with the market weakness we are seeing because of the Coranavirus.

The highly anticipated UN meeting to potentially deschedule cannabis as a schedule 1 drug has unfortunately been delayed until December 2020. With this major catalyst gone in 2020, we don’t see state by state legalization on its own driving the cannabis stocks higher.

Cannabis stocks will have to begin generating profits to bring investors back into the sector and break the downward trend.

YTD in 2020 the Global cannabis sector is underperforming the S&P 500 by 21.7% and the TSX by 25.0%.

GLOBAL CANNABIS INDEX PERFORMANCE THIS WEEK

Source: newcannabisventures.com

Market Outlook

There are now question marks on whether increased sales from cannabis 2.0 products will lift the stocks. Capital markets are largely shut to cannabis companies right now, which is a problem when the business models are built on rapid expansion and big deficits. Canadian cannabis investors should not be putting more money into the sector until retail prices find a bottom.

Price compression has arrived and will drive cannabis stocks lower over the next 6-12 months in our view without a new regulatory catalyst.

U.S. stocks will continue to outperform Canadian LPs from here in our view with more catalysts potentially on the horizon. At the first whiff of nationwide U.S. legalization, investors should pile into the largest MSOs and hold for the long term.

Canadian LPs are still stuck in a legal market growing slower than investors expected, making it hard to show the revenue growth embedded in their trading multiples. LPs are showing slow growth in 2019 and even with the 2020 rollout of edibles, vapes, and topicals growth is unlikely to exceed 150% in 2020. U.S. operators in comparison are growing revenue 150%-300% in 2019 and at similar rates or better in 2020. With analyst consensus wildly too high for Canada LPs in 2020, there may still be downside in the sector.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.