- The top five Canadian cannabis stocks have seen huge losses.
- The Canadian government fails to open up enough stores to meet the demand.
- A renowned portfolio manager weighs in on the state of the market.
The top Canadian cannabis stocks have seen massive declines over the last few months due to the slow start seen in Cannabis 2.0, a bill that allows cannabis derivatives like edibles, infused beverages and vapes to be legally bought and sold nationwide.
Despite the hype seen across the market after Canada’s historic legalization of recreational marijuana, now even the world’s largest cannabis company by market value, Canopy Growth, expects another three to five years to turn a profit.
Scary Times in the Canadian Cannabis Market
Tim Seymour, portfolio manager at the Amplify Seymour Cannabis ETF, sat down with CNBC’s Fast Money to discuss what he described as a “scary time” in the Canadian cannabis market. According to Seymour, the Canadian province of Ontario is not “opening up enough stores” to let the cannabis industry flourish. Even though Cannabis 2.0 kicked off in mid-October, its adoption has been “slowed down dramatically,” added Seymour.
As the market plummets, Canopy Growth’s CEO Mark Zekulin called on the Ontario government to immediately commit to opening more retail stores across the province,
There simply aren’t enough stores. Provinces representing 60% of the Canadian population have only 10% of the stores. So, if there is nowhere to sell consumer products, it’s very difficult to have the type of revenues that everybody expected. But, the positive news, that’s an easy problem to fix. The governments have acknowledged they need more stores. We now have enough supply to allow them to do that and hopefully, we will see that fixed.
Aurora Cannabis Inc. is also being affected by the lack of stores across the country, according to Seymour. The firm recently reported a 24% sequential decline in revenues, resulting in a slowdown in expansion plans. Aurora Cannabis announced that it would be halting the construction of one of its weed-growing facilities in Denmark and delay the activation of its Aurora Sun facility in Canada.
[Aurora is] pushing out some projects which were at one point seen as exciting growth. They are talking about waiting for global demand to pick up and waiting for domestic demand to pull up.
It's been cannabis carnage over the past few months with Cronos, Tilray, Canopy and Acreage Holdings showing massive declines. @TimSeymour smokes out the problem. $TLRY $CGC $ACB $CRON $ACRGF $APHA pic.twitter.com/hbD7Mmh7E4
— CNBC's Fast Money (@CNBCFastMoney) November 14, 2019
As the Canadian government struggles to meet the demand for recreational weed facilities, the inventory issues “are getting scary.” Seymour believes Canada went from “having troubles getting products to market” to a place where “everybody increased production.”
Back in November 2018, Terry Booth, CEO of Aurora Cannabis Inc., told a panel session at MJ Biz Con that British Columbia “shat the bed” when implementing their retail models for recreational marijuana. Booth stated that he knew it was going to be a “sh*t show,” but his company has managed to meet “contractual commitments with the provinces.” The issues that Booth saw last year continue to affect the market as a whole, without any solutions being implemented.
Canadian Cannabis Stock Carnage Continues
While the industry waits for the Canadian government to meet the demand for retail stores, the cannabis stock market continues to plummet. Pablo Zuanic, an analyst at Cantor Fitzgerald, said at the beginning of November that the concerns are already priced into the market.
According to Zuanic,
We are calling the bottom on Canadian cannabis stocks and think positive catalysts far outweigh negative ones.
However, Seymour maintains that the market is a “long way from the bottom.” As a matter of fact, in the last 24 hours, Canopy Growth plummeted 14.38%, Tiraly declined 5.35%, Cronos Group went down 6.06%, Acreage Holdings fell 6.57%, and Aurora Cannabis plunged 7.32%.