Many licenced producers have not released their full suite of new products to retailers. (GETTY)
Clouds hanging over Canada’s cannabis industry could begin to part in 2020 as pricier products and more stores in sparsely-served Ontario translate to stronger quarterly results, according to analysts at Stifel GMP Research. The optimistic take on the legal pot sector departs from the prevailing gloom after a rash of stumbles in 2019.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Horizons Marijuana Life Sciences ETF (HMMJ.TO) ended 2019 more than 37 per cent lower than it started the year. Steve Hawkins, president and CEO of Horizons ETFs, said it’s a “survival of the fittest” world for cannabis in a year-end release announcing the removal of seven companies from the HMMJ portfolio. ” data-reactid=”24″>The Horizons Marijuana Life Sciences ETF (HMMJ.TO) ended 2019 more than 37 per cent lower than it started the year. Steve Hawkins, president and CEO of Horizons ETFs, said it’s a “survival of the fittest” world for cannabis in a year-end release announcing the removal of seven companies from the HMMJ portfolio.
Mackie Research analyst Greg McLeish said in a recent report that of the 52 publicly-traded cannabis companies the firm tracks, 13 of them have less than six months of cash left on their balance sheets.
For Stifel GMP analyst Justin Keywood, the cannabis reckoning of 2019 was largely the result of transitory factors within the nascent industry.
“We believe licenced producers’ quarterly results should improve in 2020 (likely H1), which should bolster investor sentiment,” he wrote in a note to clients on Tuesday.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The new wave of edible, vape, topical and beverage products beginning to trickle into the market underpin his optimism. So-called cannabis 2.0 items officially began to hit the market in mid-December, but the actual rollout has proven slow.” data-reactid=”28″>The new wave of edible, vape, topical and beverage products beginning to trickle into the market underpin his optimism. So-called cannabis 2.0 items officially began to hit the market in mid-December, but the actual rollout has proven slow.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Many licenced producers have not released their full suite of new products to retailers. Canopy Growth (WEED.TO)(CGC), for example, is staggering deliveries to provincial wholesalers, beginning with chocolate and vapes in January followed by its distilled cannabis beverages in February. ” data-reactid=”29″>Many licenced producers have not released their full suite of new products to retailers. Canopy Growth (WEED.TO)(CGC), for example, is staggering deliveries to provincial wholesalers, beginning with chocolate and vapes in January followed by its distilled cannabis beverages in February.
Retail cannabis sales increased at a pace of about 10 per cent month-over-month, according to data up to September. Keywood expects that momentum to continue. He also anticipates cannabis companies will see four to six months of accelerating sales to provincial wholesalers as retailers stock their shelves with new products that sell for significantly more than dried flower, and appeal to a broader range of consumers.
“Cannabis 2.0 effectively opens access to 50 per cent of consumer demand, potentially doubling the addressable market,” he wrote.
“We estimate that vapes could be priced about 3.5 times higher than dry flower… while edibles could be even more attractive with about nine times higher average pricing than 1.0 products.”
Keywood believes the gross margin boost from edibles and vapes will be about 10 and 25 per cent, respectively.
Frustration over Ontario’s lack of physical stores compared to other provinces has been a common refrain on quarterly earnings calls as executives attempt to explain weaker-than-expected results.
“At the risk of oversimplifying, the inability of the Ontario government to license retail stores right off the bat has resulted in half of the expected market in Canada simply not existing,” Mark Zekulin, then-CEO of Canopy Growth, told analysts in November.
Ontario’s approach to cannabis has suffered major growing pains. The province changed course from plans for a fully-government operated system to a public-private hybrid model. It initially capped the number of stores at 25 due to supply concerns, before abandoning its cap and lottery-based licence system in December.
That’s resulted in 24 stores open today, compared to roughly 300 in Alberta, a province with about one-third the population. The new open allocation system is expected to see 20 new stores opening per month beginning in April.
“We see the changes as late but necessary to take share from the illegal market,” Keywood wrote.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Fitting with the optimistic view on retail, Stifel GMP chose Fire & Flower Holdings (FAF.TO) as its top Canadian cannabis pick for 2020. ” data-reactid=”44″>Fitting with the optimistic view on retail, Stifel GMP chose Fire & Flower Holdings (FAF.TO) as its top Canadian cannabis pick for 2020.
The retail-focused company operates a network of about 30 cannabis stores, mainly clustered in Alberta and Saskatchewan, and plans to grow to 135 locations in 2021.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Last July, convenience store giant Alimentation Couche-Tard (ATD-B.TO) announced plans to invest nearly $26 million for a 9.9 per cent ownership stake in the pot retailer, with the option of purchasing 50.1 per cent. ” data-reactid=”46″>Last July, convenience store giant Alimentation Couche-Tard (ATD-B.TO) announced plans to invest nearly $26 million for a 9.9 per cent ownership stake in the pot retailer, with the option of purchasing 50.1 per cent.
Fire & Flower CEO Trevor Fencott said the relationship will help fuel the company’s “aggressive growth.” Keywood sees the company as an emerging player in Ontario, where it currently operates two stores.
“Fire & Flower could supply both its own stores and potentially many other retailers, leading to a very strategic position. We see the Ontario government favouring FAF for this functionality over other companies that do not have a similar operating history.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.” data-reactid=”50″>Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Download the Yahoo Finance app, available for Apple and Android.” data-reactid=”51″>Download the Yahoo Finance app, available for Apple and Android.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
