Body-Blow For Canada’s Cannabis Industry

Body-Blow For Canada’s Cannabis Industry
Body-Blow For Canada’s Cannabis Industry

In the latest cannabis sales numbers from Statistics Canada, September sales from cannabis stores are reported to have fallen from CAD$125.953 million to CAD$122.927. This would be disappointing news under any circumstances.

Retail cannabis sales have been rising at a very robust rate in Canada. There have been double-digit increases in sales every month since March, with the exception of the single-digit increase in June.

Two factors make this decline in sales especially disappointing at the present time.

With Cannabis 2.0 now here and the new products expected to hit store shelves in December, both cannabis companies and their shareholders were looking forward to growing momentum in sales growth.

Canadian LP’s have already been reporting reduced purchases of cannabis due to the gradual build-up of inventories.

Now sales “momentum” has turned into a monthly decline in sales. And the reduced purchases of cannabis by provincial governments can be expected to continue for (at least) one more month.

Cannabis 2.0 will restore momentum to the Canadian cannabis industry. Both the increasing variety of products and the large jump in cannabis consumers (estimated to increase by 50%) telegraphed increasing sales.

Had momentum in cannabis sales continued through autumn, either inventories would have fallen, or provincial purchases increased, or both. Now it appears that over the short term that Canadian cannabis companies will only benefit from the stocking of Phase 2 cannabis products: concentrates, edibles, and infused beverages.

This will also impact revenue growth for Canadian cannabis retailers. At a time when capital markets have largely dried up for cannabis companies, this will make it important for these companies to maintain financial discipline until the expected sales growth from Cannabis 2.0 impacts their bottom-line.

After the first “up” week for cannabis stocks since September, this also comes at bad time for the cannabis industry from a market standpoint. Cannabis investors who have suffered through steep declines over much of 2019 were hopeful that a bottom might have been reached for cannabis stocks.

With these latest numbers from Canada’s cannabis industry, that conclusion is suddenly cast into doubt.

Few industries advance in a straight line – and the legal cannabis industry certainly illustrates that point. Weakness in cannabis sales in Canada for September could easily be a one-month anomaly, and quickly forgotten if October sales bounced back strong.

Conversely, any extended weakness in cannabis sales in Canada (where more stores continue to open) would dishearten the bulls and lend credence to the pessimism of cannabis bears.

Over the next several weeks, cannabis investors will have one eye open for the next monthly sales numbers from Statistics Canada. And one eye on the upcoming quarterly results for Canadian cannabis companies.