Back in the real world, the legal cannabis industry in Canada is thriving – and growing rapidly. How rapidly?
On Tuesday, Statistics Canada released economic numbers for July. It was another month of double-digit sales growth for the legal cannabis industry.
Cumulatively, in the first 10 months since full legalization, Canada’s legal cannabis industry has grown by a very robust 185%. This projects to annual growth of 222%, or more than a tripling in size of the legal industry.
This is impressive from several angles.
First, the medicinal cannabis market has been evolving for several years. Yet full legalization has brought an additional tripling in revenues, in just the first year.
Second, this strong rate of growth has come not because of but rather in spite of the efforts of most of Canada’s provinces to roll out cannabis legalization.
Alberta has done an outstanding job. The province boasts over 270 cannabis retail locations throughout the province, for a population base of 4 million people. Quebec and Manitoba have also done a credible job.
But Canada’s largest province, Ontario, has been a train-wreck in Year 1 of full legalization. It took the Doug Ford government nearly six months just to get the province’s first retail store opened. As of today, there are only 25 cannabis stores for this population of 14+ million.
Ontario has announced plans to award another 50 licenses. But procedural incompetence from the provincial government is now bogging this down and the process is being reviewed in court.
How large would Canada’s legal cannabis industry be today if Ontario had done a competent job in licensing cannabis stores?
We’ll never know. However, most cannabis investors would rather look ahead than look back, especially after the long, irrational pullback in marijuana stocks in 2019.
Directly ahead in Canada is Phase 2 of legalization. This is expected to add another 3 million consumers to the legal market, roughly a 50% increase in the consumer base.
The big difference between Phase 2 of legalization and Phase 1 is that the cannabis retail stores are already open now.
It’s expected to take roughly two months for these new, higher-margin cannabis products to begin to reach store shelves. However, from that point on it should be full-steam ahead.
The Canadian population is now accustomed to legalized cannabis. With the number of retail stores having reached a critical mass, strong, consistent sales growth is now being seen month after month.
For cannabis companies, this will translate into stronger bottom-lines as revenue growth catches up with the capital spending necessary to fuel future growth.
For cannabis investors, improving bottom lines will translate into stronger share prices. Cannabis stocks are grossly oversold. Short positions in the market are excessive.
The fundamentals are in place for a powerful reversal in this sector as we move into the final quarter of 2019. For 2020, the Canadian cannabis industry is poised for even stronger growth.