Deloitte Predicts $7 Billion Cannabis Market in 2019
Momentum Public Relations
Blog: June 14 2018
If you thought that all the bargains had already been found in Canada’s nascent marijuana industry, you may just want to think again. The marijuana market still appears to have plenty of legs.
According to a story posted by the CBC on June 5, 2018, accounting firm Deloitte is predicting that Canadians will spend almost $7 Billion on legal and illegal recreational marijuana and on medical cannabis. Deloitte also expects Canadians to increase their marijuana consumption by 35% once the California Rest Cure is legalized.
On June 7, 2018 the Canadian Senate voted on the marijuana bill with numerous amendments. The House of Commons now has the choice of either signing the bill as is or sending it back to the Senate. As slow as the pace is it does appear that marijuana legislation will be passed this year if not this summer.
When that finally happens market watchers expect marijuana stocks to be jolted higher. Marijuana industry valuations have been jumping since the New Year and as far back as January stock market watch dogs have expressed doubts as to the viability of the industry’s bull run.
On January 12, Toronto Star business columnist David Olive wrote that exceptional care needs to be taken in picking marijuana stocks. Among the conditions that have the potential to bring this bull market to its knees Olive included, sky-high stock valuations that have no relationship to earnings: too much competition and the potential of political interference to derail stock prices.
On January 12, Olive noted that there were 259 publicly traded pot stocks in Canada. Olive also noted that when US attorney general commented on his government’s willingness to prosecute marijuana users, Canadian marijuana stocks retreated.
Against this background it is obvious that the market still expects the marijuana industry to become as blue chip as any industry can become in this post-blue chip modern world.
In order to gain economies of scale and secure market share the marijuana industry has been consolidating for some time. In January Edmonton-based Aurora Cannabis bought CanniMed Therapeutics for roughly $1 Billion and in May Aurora bought MedReleaf Corp. for $2.9 Billion.
If you believe that Aurora will be one of the companies dominating its industry then you have the right idea. But it could be much bigger than that. The global recreational and medical marijuana market is in play and Canadian companies stand a good chance in taking the pole position because Canada is the first G7 country to legalize marijuana. Most of the big cannabis companies in Canada have more than one ace up their sleeve and they are investing in the international market.
Aurora, for example, has won the first medical marijuana tender issued by the Italian government. It also has distribution agreements in place with Shoppers Drug Mart and the Societe des Alcools du Quebec, the Quebec provincial liquor monopoly. Canopy Growth, has operations in seven countries on four continents. Aphria Inc. has operations in more than 10 countries on five continents.
If you think the market is now too high to buy in, you may want to think again. A story published in Forbes on March 1, 2018 predicts a robust and growing legal international marijuana poised for exponential growth. Investment bank Bryan, Garnier & Co have just predicted that the global marijuana market is poised to grow by a 1,000 percent to hit US$140 billion by 2027.
At this moment the bull market looks as if it will keep running. Consider this, marijuana companies are still going public. On May 2, 2018 The Green Organic Dutchman Holdings, (TSE: TGOD) listed at $3.61 and sold 31,510,000 shares. TGOD, a licensed producer, has two farms and intends to become the largest organic producer of marijuana in the world, and Canada’s lowest cost producer, specializing in breeding new strains and seeds to meet specific therapeutic targets.
On May 29 FSD Pharma (CSE: HUGE) went public on the Canadian Stock Exchange and broke the record for the largest volume traded in a single first day of trading. As the week went on following its listing on the CSE, things only got better. In the first five consecutive days of its listing FSD Pharma traded exactly 259,230,820 Class B subordinate voting shares, the largest number of shares ever traded by a CSE listed company following listing. With news like this it’s hard to believe that the marijuana market is over.
FSD Pharma, through its wholly owned subsidiary FV Pharma, a licensed producer, intends to build the largest hydroponic cannabis greenhouse in the world in what once was the Kraft production facility in Coburg, Ontario. Currently producing in a 20,000 SF phase one operation the company intends to increase that tenfold by the end of the year.
After that, there’s more room to expand in the 620,000 SF facility that sits on 70 acres of land. FSD Pharma is debt free because of the streaming agreement it made with what now is Auxly, Canada’s first marijuana streaming company, which will finance and advise on operations in return for 49.9% of production in perpetuity.
As the Canadian marijuana industry continues to mature there will be market corrections but on the whole marijuana stocks appear to have very energetic legs.
- Published in Blog