Canadians bought $2.6B of cannabis in 2020 amid slowing pace of growth
Canadians bought more than $2.6 billion worth of legal recreational cannabis products in 2020, more than double the amount purchased the year before, according to year-end Canadian retail sales figures from Statistics Canada.
StatsCan showed that Canada's recreational market stood at $2.62 billion last year, up 120 per cent from 2019. The year ended with roughly 1,400 licensed cannabis stores operating in Canada, up from about 760 shops at the end of 2019. U.S. producers sold US$18.3 billion worth of cannabis products last year, a 71-per-cent increase over 2019, according to Leafly.
The sales gains come amid a turbulent year in Canada's cannabis sector that saw COVID-19 weigh heavily on retailers. However, new stores continued to open up across the country while new product formats under the so-called "Cannabis 2.0" banner, like edibles and extracts, helped to draw new consumers to the market.
Ontario continued to lead the country with $727.5 million in sales last year, followed by Alberta with $573 million cannabis products sold, the StatsCan data showed.
In hindsight, many analysts' forecasts for the Canadian market in 2020 were wildly off target. BDS Analytics forecast that Canada's market would reach $3.3 billion last year, while Cowen & Co. said the industry's sales would hit $3.5 billion. Most market observers expect Canada's retail cannabis sales to reach between $5 billion and $8 billion at maturity.
Of course, no one could have imagined the sheer impact that COVID-19 had on the broader economy, where retailers juggled providing customers with curbside pickup, home delivery, and in-store service.
According to StatsCan, Canada sold almost $300 million of cannabis products in December, up 14.3 per cent from the prior month. Once extrapolated, that shows the country's market is operating at an annualized run rate of $3.58 billion. However, analysts expect that sales in the first quarter of this year will be soft given the number of COVID-related lockdowns that took place in the first two months of the year.
That slow pace of growth could extend even further amid early signs of a softening in cannabis sales in the fourth quarter of last year relative to prior three-month periods, according to Craig Wiggins, managing director of independent cannabis research firm The Cannalysts Inc.
As well, Wiggins noted that the launch of the Cannabis 2.0 products didn't spur as many sales as market observers expected, although specific figures on that segment were not immediately available.
"Our concern is that sales going forward is going to be a knife fight," Wiggins said in an interview. "That's why Aphria bought Tilray. That's why Hexo bought Zenabis. They're not buying them for more cultivation capacity, they're buying them for sales."
Stifel Analyst Andrew Carter said in a research note that he projects Canadian cannabis sales to climb to $4 billion in 2021 with additional growth expected to come from Ontario.
"The Canadian market’s development has trailed expectations, but the acceleration has really taken hold in 2020 with the expansion of retail access as well as the rollout of second generation products," he said.
THIS WEEK'S TOP STORIES
Hexo strikes deal to buy Zenabis for $235M to help bolster sales
Ottawa-based Hexo Corp. made the first big M&A deal in the Canadian cannabis sector this year, announcing Tuesday it would buy Zenabis Global Inc. for $235 million in an all-stock deal. With Zenabis, Hexo will gain an additional 111,000 kilograms in annual capacity, which it will use to grow high-THC-quality cannabis, the company's CEO told BNN Bloomberg. Zenabis will also give Hexo a foothold in the European medical cannabis market via a partnership with a Maltese-based processing facility and a distribution deal in Israel. Once the deal closes, Hexo will be among the top three cannabis producers in the country, by revenue. Cantor Fitzgerald's Pablo Zuanic describes the deal as being between "two underperforming companies that have consistently diluted shareholders." He added that the revenue and cost synergies are real but cast doubt on whether the combined company can gain significant market share in Canada's competitive cannabis industry.
TIlray posts first adjusted profitable quarter as Aphria deal set to close in Q2
Tilray Inc. reported its first profitable quarter - on an adjusted basis - while affirming the company's upcoming merger with Aphria Inc. will close in the second quarter of the year. Tilray said it generated US$50.7 million in net revenue in its fourth quarter and US$2.2 million in positive adjusted EBITDA. Tilray still reported a US$3-million net loss in the quarter. Tilray's revenue gains were largely due to improved sales in its Canadian recreational and international medical cannabis business. The company said it cut US$57 million in costs over the past year to help it become profitable ahead of the Aphria deal, which is expected to yield another US$100 million in "efficiencies." Stifel Analyst Andrew Carter said in a research note that Tilray shares have traded at a significant premium and there's little chance the two companies will renegotiate the deal.
U.S. pot industry job growth soars by 32% to 321K: Leafly
Roughly 321,000 people work in America's cannabis industry, according to Leafly's annual jobs report. The figure, a snapshot of the sector's labour activity in January 2021, is up a whopping 32 per cent over the same period last year, and reflects the impressive growth the pot space has enjoyed - all in the middle of a pandemic. More Americans work in cannabis than the postal service or as auto mechanics, Leafly said. Notably, Leafly reported that Black Americans represent just 1.2 to 1.7 per cent of all cannabis company owners - a gap the website says is "far too wide."
New Jersey legalization efforts hit snag, likely to be delayed
New Jersey's legalization plans appeared to have hit a snag as a pair of cannabis reform bills reached a legislative stalemate, NJ.com reports. The talks stalled between state Senators and New Jersey's Governor over a bill that establishes warnings or penalties for those under 21 caught with cannabis. If a deal can't be reached by Friday afternoon, lawmakers will move toward finalizing the state's budget next week and kick the legalization can into the future.
|Analyst Call of the Week - Verano Holdings Corp.
Verano became the latest company in the publicly-traded U.S. cannabis club after listing its shares on the Canadian Securities Exchange this week. The company's stock nearly tripled in its trading debut from its pre-IPO financing as investors flocked into what Echelon Capital Markets Analyst Andrew Semple described as a "monster from the Midwest." Semple initiated coverage on Verano with a $30 target price over 12 months and a "buy" rating, noting that the company has "one of the largest and most profitable companies in the sector." He said Verano should report US$693 million in sales this year, while posting a positive adjusted EBITDA of US$342M amid industry-leading margins. Verano CEO George Archos told BNN Bloomberg in an interview he expects to use the US$100 million raised in the IPO for M&A opportunities in Pennsylvania and Arizona, two promising early-stage cannabis markets.
For more on Verano Holdings, click here.
CANNABIS SPOT PRICE: $5.77 per gram -- This week's price is down 0.5 per cent from the prior week, according to the Cannabis Benchmark’s Canada Cannabis Spot Index. This equates to US$2,066 per pound at current exchange rates.