eResearch | The cannabis industry continues to experience high growth as legal North American markets reach record sales, amid the COVID-19 pandemic. As the U.S. moves closer to regulating cannabis federally, Canadian cannabis companies are seeking various strategies to take advantage of the new market.
In Canada, since the federal legalization of cannabis in 2018, the cannabis market has quickly grown in revenue as more retail stores opened with diverse product offerings.
According to Statistics Canada, in July, the Canadian cannabis industry generated approximately C$232 million in sales, up 15% year-over-year. In the same period, the cannabis industry added approximately C$9.7 billion to Canada’s gross domestic product (“GDP”), up 18% year-over-year.
However, Canadian cannabis companies have incurred high amounts of goodwill and impairments due to aggressive expansions for an overestimated market. In addition, write-downs are occurring on large amounts of inventory as the industry lowers product prices to compete against the illicit market.
In the U.S., states continue to implement their own legislations to regulate and tax cannabis sales, while they wait on federal legalization. More than half the states in the U.S. currently regulate the use of medical cannabis, while only 11 states allow the use of recreational cannabis.
Last month, Vermont became the 11th state to legalize recreational cannabis, after the Vermont House and Senate reached a final agreement. This week, Gov. Phil Scott announced that he will allow the bill to become law without his signature.
Currently, four states are awaiting votes to pass legislations to regulate recreational cannabis, including Arizona, Montana, New Jersey, and South Dakota.
Aurora Reports $3.3B Loss and Loses Top Market Position
Aurora Cannabis (TSX: ACB; NYSE: ACB), a Canadian cannabis producer, experienced more than a 30% drop in stock price after recently reporting a C$3.3 billion net loss for the fiscal year ended June 30, 2020.
In its most recent quarter, Aurora incurred over C$1.8 billion in write-downs and impairment charges, which included:
- C$1.6 billion in write-downs of goodwill and intangible assets, due to previous acquisitions made at highly appreciated valuations.
- C$135 million in impairment charges from changes in inventory valuation, due to a reduction in product prices.
- C$87 million in fixed asset impairment charges from facility shutdowns, to better align production with expected demand.
In addition, Aurora saw its top line deteriorate, as revenue dropped to $72 million in its last quarter versus $99 million in the prior year’s comparable period.
In the earnings release, Miguel Martin, CEO of Aurora, announced that Aurora has lost its top market share position in the Canadian consumer market.
Aurora’s stock is currently trading at C$6.70 per share, a 30% decrease since announcing its latest earnings report and a 90% decrease in the past year.
Aphria Announces First Shipment to Germany
This week, Aphria (TSX: APHA; NASDAQ: APHA), a Canadian cannabis producer, announced the completion of its first shipment of cannabis to Germany. The shipment was certified by the European Union Good Manufacturing Practices (“EU GMP”).
Aphria’s shipment of dried flower was made from its Aphria One facility in Canada to CC Pharma GmbH, its wholly-owned subsidiary in Germany. CC Pharma has 692 active EU pharmaceutical licenses and distributes products to 13,000 pharmacies across Germany.
Aphria acquired CC Pharma last year for €19 million (C$30 million) in cash. In 2018, CC Pharma reported revenue of approximately €262 million (C$407 million), with an EBITDA of approximately €11 million (C$17 million).
Aphria already launched CBD-based wellness products in Germany last quarter, which included brands such as CannRelief, Evoque, and CannaPet.
Aphria’s stock is currently trading at C$7.56 per share, a 16% increase since announcing the shipment to Germany and a 5% increase in the past year.
Canopy Announces Plans to Sell THC-infused Beverages in the U.S.
Last week, Canopy Growth (TSX: WEED; NYSE: CGC), the largest cannabis company in the world by market capitalization, announced plans to launch THC-infused beverages in the U.S.
Canopy implemented changes to its arrangement with Acreage Holdings (CSE: ACRG; OTC: ACRHF), to create a plan for Acreage to market Canopy’s beverages in the U.S. by next year.
Since Canada legalized cannabis derivative products in 2019, Canopy has sold 1.7 million THC-infused beverages. Canopy’s line of beverages includes its Tweed-branded products, such as Houndstooth & Soda and Bakerstreet & Ginger.
In Canada, Canopy currently captures 74% of the market share for THC-infused beverages, as it owns five of the top six selling products in the market.
Global Cannabis Market
The global cannabis market is expected to continue expanding as more countries announce regulations for recreational and medical uses of cannabis. The global trend of adopting cannabis regulations was supported by the success of legal North American markets.
According to Fortune Business Insights, the global cannabis market was valued at $11 billion in 2018 and is expected to potentially reach $97 billion by 2026, growing at a CAGR of 33%.
CHART 1: S&P 500 vs ACB (yellow), APHA (blue), and WEED (red) – 1 Year Chart
