Cannabis Council: Concern about Low Retail Footprint

Last month, HEXO (HEXO) withdrew its fiscal 2020 revenue guidance due to concerns about the slower rate of new store openings, a delay in regulatory approvals for cannabis-derived products, and pricing pressure. Many analysts projected lower revenue growth for cannabis companies in the second half of 2019.

Cannabis Council is concerned

Last week, the Cannabis Council of Canada wrote a letter to Doug Ford, Premier of Ontario. In the letter, the council urged him to address the issue of slower new store openings in Ontario.

The letter stated that Ontario currently owns 110 of the 243 production licenses granted by Health Canada. However, the letter pointed out that the province had just allotted 25 licenses initially. The province is still in the process of assigning an additional 50 licenses. According to the council, the licenses aren’t enough. The province lags others by a considerable margin. The letter stated that Ontario has one cannabis store for every 590,000 people. Alberta has one store for every 14,000 people, while Newfoundland and Labrador have one store for every 21,000 people. So, the council has called on the Ontario government to increase the retail footprint.

Also, the council asked the Ontario government to reconsider its policy, which prohibits licensed cannabis producers from operating more than one store. Overall, the council thinks that the province could increase its store count quickly by allowing licensed cannabis producers to operate more than one store.

Citing the report from the Ontario Chamber of Commerce, the council asked the Ontario government to relax the rules over the partnership between a retailer and a legal producer.

Cannabis sector’s underperformance

So far, the marijuana sector has underperformed the broader equity market this year. YTD, the ETFMG Alternative Harvest ETF (MJ) has fallen 21.5% as of Monday. The S&P 500 Index has risen 22.8% during the same period. Recently, vaping related deaths, higher operating expenses, the thriving black market, and the expectation of a slowdown in cannabis sales growth in the second half of 2019 dragged the sector down.

Cannabis players’ stock performance

YTD, Aurora Cannabis (ACB), Canopy Growth (WEED) (CGC), and HEXO have fallen 30.4%, 27.6%, and 42.3%, respectively.

The lower-than-expected fourth-quarter performance, analysts’ price cuts, and weakness in the cannabis sector led to a fall in Aurora Cannabis’s stock price. Notably, the company will report its earnings for the first quarter of fiscal 2020 next month. Read Aurora Cannabis: What to Expect from Its Q1 Earnings to learn more.

The weak first-quarter performance and analysts’ downgrade dragged Canopy Growth stock down. However, the company plans to introduce new products following the legalization of cannabis-derived products, which could boost its sales. To learn more, read Canopy Growth Is Set to Launch New Products.

Among the three companies considered, HEXO stock has fallen the most. The sudden resignation of the company’s CFO and the withdrawal of its fiscal 2020 guidance dragged the stock down.

We expect that the second phase of legalization and opening more stores could drive the sector. Please follow 420 Investor Daily for more marijuana-related news and updates.