Despite Shortages, Canadian Cannabis Retailers Still Seeing Profits

Despite Shortages, Canadian Cannabis Retailers Still Seeing Profits
Despite Shortages, Canadian Cannabis Retailers Still Seeing Profits

  • Canadian cannabis production shortages could extend to 2022 with the introduction of edibles and other products
  • Even with the shortages, two cannabis retailers have already achieved $10 Million in sales
  • Despite shortages the demand continues to be high and will only increase with the introduction of other products, making retail the next big play for cannabis investors 
CBC recently reported that the current Canadian cannabis shortage is expected to continue until 2022, according to one industry insider. Despite that fact, two retail cannabis chains have announced $10 Million in revenue since the October 17, 2018 legalization date.
In a recent CBC interview with Chuck Rifici, CEO of cannabis company Auxly, he states that with edibles and other new product types coming online in 2019 the shortage could last “the better part of three years”.
Regardless of the well documented production shortage, cannabis retailers are still seeing promising profits.
National Access Cannabis Corp (TSXV: META) reported on January 10 that their 20 retail locations saw $10.18 Million in sales in just over 80 days since legalization, with an average gross margin of over 32 %.
Even more recently private cannabis retailer Fire & Flower announced they achieved the $10 Million milestone on Jan 21, 2019 throughout their 9 stores in only Alberta and Saskatchewan.
These numbers should be seen as promising to investors, as it shows the demand for cannabis in retail outlets has a strong demand, that will only be increased as new products are introduced and shortages decreased.
US Precedent
As in any new industry, it will inevitably take time to build out the necessary infrastructure. US states went through the same transition when they legalized recreational marijuana. The data shows though, that as production increases and retail outlets are opened, the price of marijuana goes down and the demand and overall revenue continues to climb.

Canada is experiencing the same growing pains as states like Colorado, Washington and Oregon, but on a national level and is only a few months into legalization.
Once the supply shortages are worked out and the retail infrastructure matures, the market is expected to grow at an exponential rate.
Retail Undervalued
Investors who aren’t looking at retail are missing a huge opportunity. Leading up to legalization licensed growers saw their stocks on an upward trend for years, sparked by speculation and huge investment into the market. Once legalization hit the bottom dropped out as investors started to think companies valuation may be skewed by the hype.
Now that marijuana is legal in Canada and financial reports start to roll in it will be easier to separate the contenders from the pretenders and make better, informed choices.
But if numbers should drive investment, why aren’t investors flocking to retail companies? It’s been widely reported that retail dispensaries are more profitable per square foot than Whole Foods, and early revenue reports (even with product shortages and limited retail outlets) for companies like National Access Cannabis should have investors clamoring to invest early. Still, even after reporting $10 Million in revenue in just over 80 days National Access Cannabis (META) is only trading around $.61.
Choom Holdings (CSE: CHOO | OTCQB: CHOOF) is another retailer that is undervalued at the moment. With 78 retail opportunities across Western Canada, a $27 Million investment from Aurora (ACB) and 10 stores in construction, you would think that they would be trading higher than $.45.
We may never see the wild west returns that cannabis stocks produced before legalization again, but retail seems like an undervalued segment that has the potential to drive real profit growth and returns for early investors.
Disclosure: Choom Holdings is a paid client of The Seed Investor
Cannabis Focus, Cannabis Industry, Choom, Consumer Stocks
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