The forthcoming collapse in Canadian Cannabis Companies

[Thomas Davie]

I always wanted to say CCC. Anyways, what I did was to take all of the data that I could grab from the Cdn government website and started to do some math on it, and this is what I came up with



I totaled up the amount of Cannabis that is inventoried; processed=harvested, cured, analysed, packaged and in retail channels. unprocessed=harvested, cured and not in retail channels, perhaps analysed and packaged - maybe not. Adding (P)rocessed plus (U)nprocessed together and dividing by the amount sold at retail gives you a ratio. Plotting the ratio as the y axis and months into legalization as the x axis you get this graph. Retail sales are flat but inventory is constantly building up as new growing capacity comes online and is being used. Interpret this graph however you want; it is not good news for investors in Cdn Cannabis, or for the companies themselves. Bottom line is that people aren't buying what is being sold (or not buying enough). The crash will happen this year. Constellation Brands (they own Corona among other breweries) paid $4 billion to buy a stake in the biggest Cdn weed company and are probably regretting it very much.

I've got other graphs which I'll add in to this post. Weed apocalypse now.

Tom

 

[pupnik]

are you factoring export potential?

 

[Thomas Davie]

are you factoring export potential?

This was raw data, just manipulated a bit. Good point - and I purposely ignored that aspect because there isn’t any hard data yet. I am aware that the big LP’s (Aurora, Canopy and Hexo) are pursuing export licenses with Germany and Australia.

To be transparent, here is the formula I used;
Amount of processed Cannabis in inventory = C1
Amount of unprocessed Cannabis in inventory= C2
Amount of retail sold Cannabis = C3

For each month that Health Canada has released data, and then

ratio = (C1 + C2)/ C3 and then I plotted the ratio at each month into legalization.

Successful exports will change everything, knock the ratio down and make it seem less (or not) catastrophic. Long term survivability of some companies may well depend on exporting to other countries. However, right now there is excess capacity and it’s only increasing. The slowed ratio increase at/near the end of the data I think represents diversion of some product into concentrates. Just a guess on my part.

Good catch on the export variable. When/if Health Canada starts to release these numbers I’ll look at it. I just hope international customers aren’t disappointed with the product.

People just aren’t buying enough legal Cannabis for some of these companies to stay viable.

Tom

 

[Mafioso]

The stock collapse has already happened, or is currently happening.
"Some of the biggest pot companies in the world, including many whose underlying business is still growing, have lost enormous amounts of assumed value. From last spring to now, Curaleaf, a major company based in Massachusetts, has lost 56 percent of its value; Canopy Growth, based in Canada, lost about the same; Aurora Cannabis, also based in Canada, lost a swoon-inducing 82 percent.
Closer to home, Oakland-based Harborside, which went public in Canada via a so-called reverse takeover, was valued at $3.80 a share last June. As of Monday, the stock was selling for 61 cents. Edibles maker Plus Products, based in San Mateo, saw its stock hit $5.67 last February. Just short of a year later, it's trading at 90 cents.
The Culver City-based MedMen, which runs dispensaries in several states, has lost about 85 percent of its value over the past year. In November, it announced it would lay off nearly 200 employees, or about a fifth of its workforce, and restructure the company.
It's not just public companies. Right around the same time that MedMen was breaking the bad news, a whole bunch of private California cannabis businesses announced layoffs, including Pax Labs, Grupo Flor, Flow Kana, and CannaCraft. The reasons differ somewhat for each of them. Pax Labs, a maker of vape cartridges, was hit hard after a spate of serious lung illnesses and some deaths were tied to vaping across the country. The fact that most if not all of the illnesses were connected to illicit vaping products didn't matter: people became scared to vape at all, and that hurt big swaths of the industry, including dispensaries."

The Great Cannabis Crash of 2019 | East Bay Express

California is famous for its cyclical booms and busts: housing, dotcoms, gold mining. Guess which industry is next.

www.eastbayexpress.com

 

[Thomas Davie]

Mafioso - I’m aware that Aurora and Canopy are hurting, along with Hexo (Quebec) but I really didn’t know that any US companies faced troubles.

Cannabis NB (New Brunswick)lost a lot of $ and is trying to find private buyers for it’s government run stores. In Manitoba, the stores appear to be surviving; though I think that’s partially because our provincial government has banned home cultivation. Dunno what’s going to happen when there is a change in the party in power.

Tom

Canntrust stock has lost ~80% of it’s value since it was found to have shipped 300+ lbs of illegal Cannabis, ~75$ million Cdn in inventory was returned to them and destroyed, prohibited from selling to patients and ON sept 17/19 had their license yanked from them by Health Canada. Among the infractions were the discovery of false walls designed to hide unauthorized grow rooms. It sometimes take HC 2 years to approve a license; don’t know how this one is going to end up. Throw in the slow rollout of stores in Ontario (20 at the moment) the heavy restrictions in Quebec (raising the age from 18 to 21) makes me pretty glad my retirement $ isn’t in Cannabis

 

[thujone]

I suspect it was all part of an unsophisticated pump-n-dump: friends of the Liberals in high places in these companies getting in on the ground floor of this legalization business while there isn't much competition, taking profit at the first big gains then leaving the companies to fight for survival after they have no skin left in the game

 

[PriestTheyCalledHim]

I suspect it was all part of an unsophisticated pump-n-dump: friends of the Liberals in high places in these companies getting in on the ground floor of this legalization business while there isn't much competition, taking profit at the first big gains then leaving the companies to fight for survival after they have no skin left in the game

Do most people in Canada grow their own herb? In the USA in states where pot is illegal, legal, legal for medical use-any adult can get a card, and tolerated most people grow their own herb or buy it in bulk tax free from a dealer.

I do not use herb or any drugs now.

 

[Thomas Davie]

PriestTheyCalledHim - No, most people in Canada don’t grow. 2 provinces (Quebec and Manitoba) as well as one territory (Nunavut) have reduced the 4 plant per person/household limit down to zero, effectively illegalizing home grows. Even in those provinces/territories which do allow personal cultivation; it is at the property owner’s discretion as to whether Cannabis can be grown (or smoked/vaped) where a person rents/condo owns/ rooming houses, etc. Some landlords may not object - the only way around that is a medical prescription which falls under our ‘Charter of Rights and Freedoms’.

Tom

’’

 

[checktest]

I suspect it was all part of an unsophisticated pump-n-dump: friends of the Liberals in high places in these companies getting in on the ground floor of this legalization business while there isn't much competition, taking profit at the first big gains then leaving the companies to fight for survival after they have no skin left in the game

I remember seeing billboards and hearing radio advertisements for Aurora stock ("get in the ground floor of a growing cannabis company" or some such) in a worn down city in upper MA. Scary stuff manipulating people.

ACB puts were a capitalistic guilty pleasure for the end of 2019.

 

[Thomas Davie]

At legalization date Zenabis, which peaked at 7$/ share is currently at 0.14$/ share and it’s parent company Namaste 3$ > 0.57$/ share
Auxly Cannabis Group 1.25 > 0.68
Emerald Health Therapeutics 5.0 > 0.35

Just some boring publicly accessible numbers I looked up during dialysis. One customer service representative that I interacted with @ Zenabis regarding a complaint about a legal product doesn’t seem to work at the company any more (80 layoffs around 2 weeks ago).

There was a mini (approximately 10% rally across the board ) just after edibles, concentrates and vapes started hitting the market and selling. Said rally has, in some cases already been erased and some stocks are sinking lower.

Just for entertainment -

 

[Mafioso]

I’m aware that Aurora and Canopy are hurting, along with Hexo (Quebec) but I really didn’t know that any US companies faced troubles.

There isn't really much of a difference between the two at this point, as many Canadian companies are operating internationally in the states, or US based companies do a reverse takeover and put their headquarters in Canada. It can take some time to track down the relation, as many don't advertise or make it easily known to the public all of their subsidiaries. For example, Auroa acquired Praire Plant Systems(now CanniMed), which has subsidiaries in the US called SubTerra which has been operating since early 2000s, and in 2012 announced it's plans to grow medical cannabis. Michigan based company Gage Cannabis Company(I believe they are part owners of the Cookie brand) just took on Bruce Linton as their CEO, former co-CEO of Canopy.

The web is much more tangled than that, but I really don't have time to research it fully nor do I fully understand all that's happening. A lot of it is happening behind closed doors, or out of the public eye. The best info I have found comes from industry insiders and market researchers. Take a look at this Instagram account's timeline https://www.instagram.com/thegreedrush/ They do a pretty good job at shining a light on some darker parts of the industry/market.

Canntrust stock has lost ~80% of it’s value since it was found to have shipped 300+ lbs of illegal Cannabis, ~75$ million Cdn in inventory was returned to them and destroyed, prohibited from selling to patients and ON sept 17/19 had their license yanked from them by Health Canada. Among the infractions were the discovery of false walls designed to hide unauthorized grow rooms. It sometimes take HC 2 years to approve a license; don’t know how this one is going to end up. Throw in the slow rollout of stores in Ontario (20 at the moment) the heavy restrictions in Quebec (raising the age from 18 to 21) makes me pretty glad my retirement $ isn’t in Cannabis

That seems to be about the par for the course in terms of industry players. I'm not sure if it's the same company, but I know I've heard of at least one company getting busted for that same thing. Pretty sure it was upwards of 1000 tons though, being shipped from Northern CA to Canada.

Cura Cannabis, who acquired Select not long ago, was started by a man who was convicted of a real estate scam, which prosecutors say he then embezzeled and started the cannabis company Cura.

All this isn't even really the tip of the iceberg.

I suspect it was all part of an unsophisticated pump-n-dump: friends of the Liberals in high places in these companies getting in on the ground floor of this legalization business while there isn't much competition, taking profit at the first big gains then leaving the companies to fight for survival after they have no skin left in the game

Very much so, in many cases. at least the pump-n-dump part. I can't speak on the level of sophistication on all of them, as many are also lobbying for bills that would force market consolidation/raise the bar of entry. Essentially leaving the market open for a select few to dominate and reap all the profits of international brands.

There is definitely a lot of fraud happening, just typing in "cannabis fraud" into the search engine yields some interesting results. "Cannabis Con- Ten Signs of a Cannabis Scam" for starters...

 

[Mafioso]

Just read about how Oregon has surplus still leftover from 2017, forget the source. I know Oklahoma is going to be facing massive surplus if they haven't already, they currently have the most cannabis licenses in the nation despite not having the economy to support it, just low bar to entry(good thing), but only time will tell how many of those will last. My friend who works in the legal distro in CA says there's massive flower surplus as well. I don't have any numbers to back these, but there are some pretty telling signs, like Colorado having the largest cannabis farm in the nation(possibly world) despite have a population not much larger than Los Angeles alone.

Medmen is rumored to have had its second round of layoffs, while having a terrible stock outlook. Many speculate they are running out of capitol quickly, reports of not being able to pay their vendors as well. Pretty sure they are partnered with a Canadian company Cronos- but not 100% sure off the top of my head.

 

[Thomas Davie]

Mafioso - Medmen does have a deal with Cronos group in Canada. Cross border mutually reciprocal licensing. There is now an LLC called Medmen Canada.

Canopy dropped another 7.46% today and Aurora fell 4.76%

One original LP Delta9biotech, founded in my city of Winnipeg is in an odd situation. They have apparently dropped the prices on all of their products permanently; but their flagship store is only carrying 3 of ~30 of their own strains. Whenever they get very low priced competitor products, those sell out very quickly, being priced even lower than D9's own. They have 4 stores in the province and have purchased 2 Fire & Flower stores in Alberta. They still sell directly to med patients through the mail but sweet eff all for selection. I would like a local company to succeed - the promised transdermal patches and nano-emulsified nasal spray have yet to materialize. Just started carrying the Pax pods, and cough - buy a bunch and there's a mortgage payment for me.

An original article in The Globe & Mail stated that as of Sept/19 21 companies only had cash to carry them through 6 months.

Tom

 

[MJ420]

Here in Ontario they ruined what could have been a great money maker.
I order from b.c and my friends also. The black market is stronger than ever.
Government weed has mold and bugs

 

[pupnik]

I never got mold and bugs - do you have sources to back this nugget of information?

 

[RippinItUp]

Yup here in Onterrible, they totally monopolized and ruined what could have been a solid taxation system. Now we have only LP's (and few micro growers) being able to supply the OCS along with the few shitty 'Starbucks' like dispensaries with overpriced, low quality cannabis!
The black market however is thriving

 

[MJ420]

I never got mold and bugs - do you have sources to back this nugget of information?

You can use Google yourself. It was everywhere when the Ontario government started selling. They even had a big recall so i don't know why you need sources. Everyone knows their weed is over priced crap. I don't know 1 pothead in Ontario that uses the government. Only newbies and people with no decent connections use the government crap

 

[Yourbaker]

When the gap between grower and consumer grows by adding extra layers of government control between them, it can not improve quality. Like any food production, staying connected to your consumer produces better results.

If I can make an average product easily and sell it all to a government warehouse and never see a client it's like printing money, until the government warehouse gets full....

The BC black market has never been so good. Perhaps we should have just decriminalize and never bothered with legalization, it's beginning to look almost as useful as the failed long gun registry.

 

[Mafioso]

Yeah black market definitely booming in CA as well. CA just implanted even more taxes recently, and the tax is on gross profits making the effective tax rate around 70-90%. At least according to an article I read the other day, will try to find the source.

 

[pupnik]

with delivery etc. the price gets close, and being able to browse many products is a plus for the legal dispensaries.
I have obtained 3 great varieties each rated over 22%THC and without being tracked bothered or worried.
My friend got me some Afghan Mazar Sharif from a friend who got it delivered, and this is spectacular hash with a beautiful flavor. I wish the dispensaries had that, but the weed is super.

this government is pretty stupid though, and the Premier of Ontario was a Dope dealer in high school, so we are all suspicious about how many of his cronies are on the take.