- Momentum continues to build in Canada’s cannabis sector
Canadian (and global) retailing giant, Alimentation Couche-Tard Inc (CAN:ATD.A US:ANCTF) has made a CAD$25 million “strategic investment” in Canadian cannabis retailer, Fire & Flower Holdings Corp (CAN:FAF / US:FFLWF). That’s news.
Fire & Flower is up approximately 20% on this announcement. That’s good news – for cannabis investors and the Canadian cannabis industry in general.
Couche-Tard’s subscription agreement allows it to obtain a controlling interest in Fire & Flower. It contemplates an aggregate investment of up to CAD$380 million of “growth capital”, to facilitate Fire & Flower’s global expansion into cannabis retail.
That’s major news.
As has been previously reported at The Seed Investor and elsewhere, multinational beverage companies have already been buying their way into Canada’s cannabis industry. Constellation Brands (US:STZ) has invested more than CAD$4 billion in Canopy Growth Corp (US:CGC / CAN:WEED). Molson Coors (US:TAP) has a joint venture with Quebec cannabis giant, HEXO Corp (CAN:HEXO / US:HEXO).
However, those moves were aimed specifically at the cannabis-infused beverage space. This is different.
This is a major move by a $7.7 billion food retailing giant that controls 16,000 stores in 26 countries.
Let’s connect the dots.
Canada is about to move into Phase 2 of its national legalization of cannabis. Infused cannabis products and various other cannabis concentrates and derivatives (including “edibles”) are now becoming legal.
Today, these products will only be offered to consumers in cannabis retail stores (such as those operated by Fire & Flower). This explains Couche-Tard’s immediate interest in expanding into Canadian retail cannabis.
The Canadian cannabis market is projected to grow to CAD$9.2 billion by 2025. Globally, the legal cannabis market is expected to reach US$66.3 billion by 2025.
Going forward, products infused with THC (the mildly psychoactive cannabinoid in cannabis) will almost certainly only be available in designated cannabis stores. But products containing CBD can/should/will be available for broad retail distribution.
Enter Alimentation Couche-Tard, and its global network of 16,000 stores in 26 countries.
Cannabis in the food industry
As The Seed Investor has explained, CBD is not a drug (despite the current opinion of the U.S. Food and Drug Administration).
It is a safe, health-promoting cannabinoid, like those that mothers naturally pass to their infants in mother’s milk. As governments (and their regulatory bodies) become educated about cannabis, CBD in particular will benefit from much more relaxed regulation.
The global dietary supplements market is projected to reach US$220.3 billion by 2022. The potency of cannabis as a health supplement means that it will claim a significant portion of this market share.
The hemp sub-species of cannabis is also an excellent nutritional source: as much protein as meat, essential fatty acids, vitamins, minerals and fiber. This means there is enormous potential for cannabis/cannabinoids as not only health supplements but also as food additives.
Over the long term, hemp (and its cannabinoids) can be expected to become an important food additive, across the entire spectrum of food products.
Globally, the food and grocery store market is a US$10 trillion per year revenue pie. Couche-Tard is a substantial player in this market. Its retail operations are already strongly oriented toward Canada.
As the Canadian cannabis market and Canadian cannabis regulations mature, Couche-Tard can capitalize on its positioning in the Canadian marketplace.
After that, it can roll out this retail model to the rest of the world. Globally, the march toward cannabis legalization – and normalization – remains a relentless trend.
That’s the Big Picture, over the longer term.
Momentum building in Canadian cannabis industry
Cannabis investors may be more interested in the short-term picture. Here momentum continues to build for the Canadian cannabis industry.
As The Seed Investor recently reported, Canadian cannabis retail sales have now expanded at a double-digit pace (nationally) for three consecutive months. Yet cannabis stock valuations have still only been pricing in negative news in the industry.
Going forward, these retail sales can be expected to accelerate. Canada’s provinces have finally begun to build a critical mass of cannabis retail outlets. Sales are following.
These rapidly improving sales numbers will be showing up in next quarter’s earnings reports for the Canadian cannabis industry – just as Phase 2 of legalization kicks in.
With its major strategic investment in Fire & Flower, Alimentation Couche-Tard is poised to capitalize on the emergence of Canada’s cannabis industry. Cannabis investors may want to engage in their own positioning.