When is comes to cannabis M&A activity, it’s hard to ignore the U.S. market: Organigram CEO
TOP NEWS OF THE WEEK
Uber strikes partnership with Canopy's Tokyo Smoke to order (but not buy) pot through Uber Eats app
Uber is inching forward into the pot business after striking a deal with Canopy Growth's Tokyo Smoke retail banner in Ontario. Users will be able to use Uber's "Uber Eats" app to order cannabis in Ontario, but the app will not process payments and customers will have to go to a Tokyo Smoke store to pick up their purchases. While this isn't a relatively new service - many other retailers offer similar order-and-pick-up initiatives - the partnership does show an increased normalization of cannabis among mainstream technologies. There is no word whether Uber will extend its partnership with Tokyo Smoke to other cannabis retailers, outside of Ontario and whether it will process payments for cannabis products.
OPP finds illicit cannabis rife with pesticides, weak potency levels
The Ontario Provincial Police (OPP) issued a statement on Thursday detailing how illegal cannabis products are rife with pesticides and lower-than-advertised potency levels. THC content found in seized illegal cannabis vape samples were tested by the National Research Council of Canada and found the levels vary from less than one per cent to almost 80 per cent. By comparison, legal products sold on the Ontario Cannabis Store consistently showed a greater than 80 per cent THC content. Illicit vapes also contained high levels of myclobutanil, which can generate hydrogen cyanide - a dangerous toxic compound - when heated. Several dried cannabis samples tested by labs also found high levels of myclobutanil as well as oter traces of pesticides such as metalaxyl, chlorpyrfos, and pyridaben, the OPP said.
Quebec looking into possible ties of a Hexo shareholder and Hells Angels
A Quebec government authority has requested the province's anti-corruption police force investigate whether there are any ties between Hexo and a man that is linked with the Hells Angels, the Globe and Mail reports. The probe centers on Josh Hill, the son of the late Ken Hill, who was a large shareholder in Redecan before it was sold to Hexo. Images on Hill's social media show him alongside people that were identified by Le Journal de Montréal as members of the Hells Angels, which some Canadian courts say is a criminal organization. Other pictures show Hill with Peter and Will Montour, two Redecan executives and shareholders which joined Hexo's board following a takeover earlier this year. A Hexo spokesperson told the Globe that it has no business relationship with Hill although a source told the newspaper he remains a shareholder in the company.
New Germany government plans to legalize cannabis, details scant
Germany's incoming government announced plans to legalize cannabis for recreational purposes on Wednesday, part of a wide ranging set of plans following a coalition formed by the country's three leading political parties. The government outlined its plans in a 118-page agreement to create a regulated market for adult-use cannabis although further details were scant, according to Marijuana Moment. After four years, the parties vow to re-evaluate the law and its effect on society. Roughly 30 per cent of Germans surveyed in a recent poll supported the legalization of cannabis for recreational purposes, according to the New York Times. Luxembourg is also close to formally legalizing cannabis with a vote expected soon that could see recreational sales kick off in 2022.
Cronos receives non-compliance letter from Nasdaq following Q3 delay
Two weeks after announcing a delay in reporting its third quarter results, Cronos Group said it has received a written notice from Nasdaq that states its stock is not "in compliance with the requirements for continued listing". The company also was issued a management cease trade order by Canadian securities authorities last week. Cronos said in a statement its management "continues to work diligently to complete" its delayed financial information, which expects to report a $220 million write down.
Quarterly Results Wrap: TGOD, Organigram and Ayr
Here's a summary of some of the cannabis industry companies that reported quarterly results this week:
- The Green Organic Dutchman: Third quarter revenue up 142 per cent to $7.3 million, $14.1 million in a net loss, compared to a $75.6 million loss a year earlier. (Release)
- Slang Worldwide: Third quarter revenue up 27 per cent to $10.1 million, $1.9 million in an adjusted EBITDA loss, compared to a $57,000 gain a year earlier. (Release)
- Planet 13 Holdings: Third quarter revenue up 45 per cent to US$33 million, US$3.5 million in adjusted EBITDA, compared to a US$6.4 million gain a year earlier. (Release)
- Australis Capital: Second quarter revenue up 2,700 per cent to US$2.2 million, US$4.3 million in a net loss, compared to a US$14 million loss a year earlier. (Release)
- Organigram: Fourth quarter revenue up 22 per cent to $24.9 million, $4.8 million in an adjusted EBITDA loss, compared to a $2.3 million loss a year earlier. (Release)
- Khiron Life Sciences: Third quarter revenue up 83 per cent to $3.5 million, $3.8 million in an adjusted EBITDA loss, compared to a $4.7 million loss a year earlier. (Release)
- Ayr Wellness: Third quarter revenue up 111 per cent to US$96.2 million, US$26 million in adjusted EBITDA, compared to a $18.6 million gain a year earlier. (Release)
ANALYST NOTE OF THE WEEK
ATB Capital Markets on What's Next for Licensed Producers?
ATB Capital Markets Analysts Frederico Gomes and Kenric Tyghe write an expansive note to clients this week that attempts to answer some key questions on what happened with Canada's licensed cannabis producers since the country legalized cannabis three years ago, and why they can't be profitable. The answer is multifaceted, with the analysts initially noting the massive amount of fragmentation in the industry coupled with a lack of differentiation on a brand level, mainly due to marketing restrictions. Eventually, the market has to consolidate with ATB estimating it will take two years for M&A to gradually lead to industry attrition. ATB estimates that over the long run, Canada's cannabis industry can grow to as high as $12 billion in annual sales (although $7 billion is viewed as a more realistic figure). With the current valuation of large licensed producers totalling $16 billion, with the market expecting those companies to seek growth outside of Canada through international expansion.
CANNABIS SPOT PRICE:
$5.03 per gram
This week's price is up 0.6 per cent from the prior week, according to the Cannabis Benchmark’s Canada Cannabis Spot Index. This equates to US$1,815 per pound at current exchange rates.
"You can't turn away the large amount of consumers and volume in the value segment."
- Organigram CEO Beena Goldenberg in an interview with BNN Bloomberg on how the company saw its fourth-quarter revenue jump 22 per cent.