Cannabis investing may be 'dead money' in 2022: Cantor Fitzgerald investor
Ottawa bound: Canada's pot companies renew lobbying efforts
A small number of major players in Canada’s cannabis industry are stepping up to the plate to lobby the federal government as policymakers get set to review the country’s cannabis legislation.
A review of Canada's lobbyist registry shows that seven cannabis companies engaged with federal politicians last year alongside two industry associations that focused primarily on expanding the country's marijuana regulations.
Through lobbying, industries typically bend the ear of policymakers that help draft bills to create rules that would benefit them as much as possible, with cannabis being no different than energy or technology. However, the stakes this year have never been higher for the cannabis industry as Bill C-45, the law that legalized pot in Oct. 2018, is set for its mandated review, a process that is expected to take 18 months to complete.
"It's very clear that we're in the early days of the brand new policy space, not just new to Canada, but new to the world," said Rick Savone, who heads Aurora Cannabis Inc.'s government relations team, in an interview. "There's a lot of learning going on and there needs to be some adjustments as we move forward."
Canopy Growth Corp. led the pack with a total of 37 meetings with federal cabinet and ministerial officials, nearly half of which were conducted by third-party consultancy firm GT & Company Executive Advisors, the registry shows. Aurora Cannabis Inc. followed behind with 28 meetings, while High Tide Inc., Cronos Group Inc., Truss Beverages Inc., and Organigram Holdings Inc. all met with policymakers once last year.
Canopy used its lobbying efforts to focus on amending regulations that would ease limits on how many cannabis-infused beverages can be purchased in a single transaction, especially those products with lower potency levels. In a statement, a Canopy spokesperson told BNN Bloomberg they are committed to working with Health Canada to arrive at a solution that prioritizes consumer education and safety on cannabis drinks.
"The consumer uptake on this format has been slower than anticipated due to the treatment of cannabis-infused beverages under the equivalency calculations," said Sean Webster, head of Canopy's Canadian government and stakeholder relations. "We believe it is our obligation to advocate for regulatory amendments which will benefit the continued growth of the industry while supporting responsible and enjoyable experiences with cannabis."
George Smitherman, the chief executive officer of the Cannabis Council of Canada, told BNN Bloomberg that the 10 times he lobbied the government last year were aimed at building relationships to inform bureaucrats and politicians about the various issues that the industry wants to be addressed. Those include fixing excise tax payments to avoid overcharging producers, reverting to a national excise stamp system, and amending potency levels for edible products.
One of the challenges Smitherman faces is trying to nail down a single issue that the industry can work with policymakers on. He did note, however, that the excise tax issue is something that he plans to speak about alongside industry counterparts with officials from the Ministry of Finance on Friday. He plans to visit officials personally in Ottawa throughout the year to further advocate and influence them on cannabis-related matters.
"It's a multitude of issues, but I think some of them are really unifying," he said. "It doesn't matter what size of company you are, a 10 milligram [THC] limit on edibles is for a lot of people a serious concern and constraint to the prospects of actually winning over that category from the illicit marketplace."
While most lobbying efforts have focused on Health Canada given that's the department responsible for regulating the cannabis industry, some industry executives are looking to other areas of government to make their case known. One idea is to create an economic advisory panel under the purview of the Ministry of Industry that would provide the industry with a direct, and perhaps more appropriate, pathway for regulatory change.
Omar Khan, senior vice president of corporate and public affairs at pot retailer High Tide, recently met with officials from the Prime Minister's Office and members of the Official Opposition to advise Ottawa to take a broader economic lens when regulating cannabis in the future.
"When you talk to them and you let them know that the GDP contribution right now is comparable to auto manufacturing, or to life sciences or even to dairy, when you show them those statistics they're quite taken aback," Khan told BNN Bloomberg in an interview.
"I'm hopeful out of this latest round of meetings that we will be able to get some sort of movement, the proof will be in the pudding, but I'm cautiously optimistic at this point."
THIS WEEK'S TOP STORIES
Pot stocks broadly decline as analyst warns of "dead money" growth this year
It was another rough week for pot stocks. Bearish sentiment continued to hang over the sector with bigger Canadian producers such as Tilray Brands and Canopy Growth nearing double-digit declines, while Hexo's stock traded below the $1-per-share figure for the 30th day in a row, leaving its listing on the Nasdaq in jeopardy unless it conducts a stock-split. Main U.S. names like Trulieve and Curaleaf didn't fare that much better. They fell about five per cent and nine per cent, respectively. The week began on a sour note after a report from Cantor Fitzgerald Analyst Pablo Zuanic concluded investing in cannabis stocks this year might be worth "dead money" to investors as the likelihood of U.S. federal legalization taking place in 2022 appears to wane. That said, the year may present an opportunity to "selectively" start building positions to take advantage of cheap valuations, Zuanic said.
Cannabis retail in focus with High Tide's Q4 results, Fire & Flower's new e-commerce platform
Canadian pot retail giant High Tide reported fourth-quarter results, with sales up 12 per cent sequentially to $53.9 million, while notching $1.6 million in adjusted EBITDA. Same-store sales for locations that were open in the past two fiscal years declined by 16 per cent, although much of that was attributed to increased competition in the Ontario market. The retailer, which has 109 locations across four provinces, expects to report over $70 million in sales in the current quarter. Meanwhile, Fire & Flower announced it launched an e-commerce platform that would allow consumers to shop directly on a licensed producer’s website and get their products fulfilled and delivered by the retailer's Pineapple Express subsidiary. Fire & Flower is beginning to serve five Canadian producers including Cronos Group and Aleafia. Stifel-GMP said in a report that the company could generate new digital advertising revenue while getting better access to consumer purchasing behaviour.
Amazon supports latest legalization legislation in hopes of broadening labour pool
Amazon is doubling down on its support for legal cannabis in the U.S. It’s now endorsing legislation by a U.S. Republican Congresswoman that seeks to end the federal prohibition on pot. Amazon's argument essentially boils down to how it could find more people to hire if drug testing requirements were eased and that legalizing pot may assist with employee retention, both of which disproportionately impact individuals of colour. The company, however, is not interested in selling pot, according to The Washington Post. While Amazon has previously supported Democratic-led pro-pot legislation, this is the first time it's supported a Republican-backed reform bill. The move has its critics: Massachusetts Senator Elizabeth Warren tells the Post that for Amazon, it’s more about a “self-interested move to monopolize yet another market, potentially blocking Black and Latino entrepreneurs from an emerging industry."
Thailand becomes first Asian country to decriminalize cannabis but recreational status unclear
Thailand decriminalized cannabis on Tuesday but the decision still left the legal status of recreational marijuana use in a grey area. The country dropped cannabis from the health ministry's list of controlled drugs that will formally enter into effect 120 days after its publication in the government gazette. However, it remains unclear if possession of marijuana would be an offense subject to arrest, and how the production and possession of cannabis will be regulated. That could be determined soon as Thailand's Health Minister plans to formally ask the government to draft legislation to clarify the status.
ANALYST NOTE OF THE WEEK
Jefferies updates expectations on several Canadian producers
Jefferies Analyst Owen Bennett updated the firm's expectations for four of Canada's biggest cannabis producers - Hexo, Tilray, Cronos Group and Organigram. Of the four, Bennett gives Tilray and Organigram a "buy" rating and places a "hold" for the other two names. Hexo received an upgrade to "hold" from "underperform" as the company's EBITDA forecasts appear to be improving but had its 12-month price target cut to 67 cents per share, from $1.35. Tilray's price target was slashed to $17 from a lofty $22 but Bennett noted that despite its recent sales challenges, it remains the country's top cannabis producer. He notes Tilray's presence in Germany could reap rewards in the near term as the European nation looks to regulate and legalize adult-use cannabis sales soon. Profitability for Cronos remains "some years off" as the company's stock essentially trades not too far off its cash value. Cronos still hasn't released its third-quarter results following an auditing delay and the company's ambitious cannabinoid fermentation plans hit a snag last year after it was reported it would be licensing the use of that technology to Aurora Cannabis. Bennett does note it has recently won some market share in the Canadian market of north of five per cent. Meanwhile, Bennett extolls Organigram in the report, stating the company has "really hit its stride in Canada" and has "among the most impressive portfolios across the space."
CANNABIS SPOT PRICE
$5.07 per gram
This week's price is up 0.4 per cent from the prior week, according to the Cannabis Benchmark’s Canada Cannabis Spot Index. This equates to US$1,812 per pound at current exchange rates.
Supply Chain Chaos
- U.S. producer Kiva Confectionaries revamped its holiday-themed edibles from last year to “supply chain chaos” after the products were held up due to logistics delays, according to Insider.