October 17 is the one-year anniversary of legal recreational cannabis in Canada. However, only some Canadians buy legal marijuana. Citing Statistics Canada, CBC said that only 29% of cannabis users said they have bought all their products legally.
The first year of legal cannabis
As reported by BNN Bloomberg, Cannabis Benchmarks estimated that Canada would sell $1.1 billion worth of legal marijuana in the first legal year. At a rate of $10.23 per gram, the estimate transformed to 105,000 kilograms. BNN Bloomberg said that it was a small percentage compared to an estimated amount of 924,000 kilograms.
The slower opening of new retail stores, higher prices, and unavailability of legal cannabis-derived products are some of the reasons for the black market to thrive. As reported by CBC, CEO of The Cannalysts Andrew Udell said that making legal cannabis isn’t expensive. However, the regulatory process and taxes drive the prices of cannabis products higher.
Under these circumstances, Canada passed Cannabis 2.0. From October 17, Health Canada is accepting applications from companies that wish to make marijuana-derived products.
However, the companies can’t sell their products for the next 60 days from the submission date of their application. During this period, Health Canada will conduct inspections and provide approvals. So, we expect marijuana-derived products to reach markets mid-December.
Many Canadian citizens are interested in edibles
In mid-December, consumers will be able to buy marijuana-derived products legally. However, the recent vaping-related deaths have moved the focus away from vapes. Also, edibles give consumers a different way to consume cannabis.
In June, Deloitte guessed that the edible market would reach $1.6 billion Canadian dollars a year in Canada. Also, its survey said that 59% of the people are interested in trying cannabis-infused edibles. Edibles have the highest interest among all other product types.
Canopy Growth is optimistic
Currently, marijuana players sell cannabis dry leaves, flowers, oil, or gels. These are of lower margin. However, with derivative products available, companies can differentiate their products. Thus, they can sell at a higher price.
Last week, Jordan Sinclair, vice president of communications at Canopy Growth (CGC) (WEED), spoke with CBC Radio. Speaking of derivative products, he said, “They’re going to have a higher margin. People are willing to pay more for those products because it’s not just the cannabis itself. It’s been converted in some innovative way.” So, we expect derived-products to help marijuana companies’ profits.
Aurora Cannabis focuses on edibles
During the fourth-quarter earnings call, Aurora Cannabis (ACB) announced that it would manufacture vapes and edibles at its Aurora Air and Aurora Polaris facilities. Also, the company said it started making mints, gummies, and chocolates.
Yesterday, CBC said that Aurora is looking for product approval from Health Canada. The company could bring them to the market by mid-December. For more on Aurora’s plans, read, “Cannabis 2.0: Aurora’s Focus on Edibles.”
Weed and CRON have plans for cannabis-based products
During its first-quarter earnings call of fiscal 2020, Canopy Growth (CGC) (WEED) said that it will make several cannabis-infused chocolates. Further, the company bought a former Hershey chocolate factory to help make its products. On October 19, CBC said that Canopy Growth submitted its edible products to Health Canada for approval.
In July, Todd Abraham became CIO of the Cronos Group (CRON). He has over 35 years of experience in the consumer goods sector. During the second-quarter earnings call, Cronos Group’s management said that cannabis-infused edibles are important in the long-term. For more, read, “Cannabis 2.0: What Cronos Group Has in Store.”
Cannabis sector performance
So far, the cannabis sector has underperformed the broader equity market. On a YTD basis, the Horizons Marijuana Life Sciences Index ETF (HMMJ) lost 20.1%. Also, the ETFMG Alternative Harvest ETF (MJ) lost 25.2%. Meanwhile, the S&P 500 Index grew by 19.9% during the same period. Growing operating expenses, expected lower revenue growth in second-half of 2019, and recent vaping-related deaths have dragged cannabis stocks down.
Aurora Cannabis, Canopy Growth, and Cronos Group have lost 29.2%, 27.4%, and 22.8% of their stock value, respectively. We expect edibles to drive marijuana companies’ revenue and profits. Plus, the growth in revenue and profit could drive companies’ stock prices. For analysts’ ratings and marijuana-related news and updates, follow 420 Investor Daily.