Ontario delaying the launch of private marijuana sales in brick-and-mortar stores until April 2019 is a near-term negative, but a longer-term positive for the sector, analysts say.

  • Canaccord analyst Matt Bottomley sees the delays as short-term drag but a potential long-term net positive; if Canadian licensed-producers (LP) are included in the private retail model, there is potential for LPs to achieve higher margins as they could significantly benefit from retail selling prices in a more vertically integrated market
  • GMP analyst Martin Landry thinks this will be a near-term headwind for cannabis retail sales as a physical retail network is essential to capture a meaningful share of black-market
    • However, Landry expects private retail to be more effective than a government monopoly to capture market share from black-market
    • Highlights Cronos Group, Canopy Growth and Aurora Cannabis among winners in this backdrop
  • Eight Capital analyst Graeme Kreindler says a privatized system seems to be positive for the cannabis industry and its ability to diminish the illicit market; sees the ability to provide a safe, welcoming and accessible retail environment as a key element for the Canadian market to reach its full estimated potential of C$11b
    • However, he isn’t changing any valuation for the stocks under coverage until there is more clarity on issues such as number of retail licenses to be issued, caps on license ownership, LP involvement in retail, etc
  • NOTE: Aug. 13, Marijuana Stocks May Fall as Ontario Delays Private Stores