Market Analysis

By Eric Vengroff, Senior Financial Analyst

Imagine if you were like Rip Van Winkle and fell asleep, somewhere in Canada, during the fall of 2015.   Instead of waking up 20 years after the American Revolution, you woke up just three years after the Canadian federal election, otherwise known as the start of the Canadian Cannabis Revolution.

You wake up, are handed a mobile device open to the browser and find out that the three most heavily traded stocks on the TSX that day are growing weed. There’s a Canadian company growing weed on the New York Stock Exchange…

As you turn on the television, the CBC reports that a Deloitte survey supports the conclusion that post legalization, consumption by Canadians is expected to increase as much as 35 per cent and spend as much as $7 billion in 2019 by whatever means, legal and illegal, are available.   Back to reality…or at least a version of it.

According to Deloitte, legal cannabis sales are expected to reach up to $4.34 billion, while illegal sales could be anywhere from $510 million to $1.04 billion, and medical cannabis could account for between $770 million and $1.79 billion of the market, the report says. So, percentage-wise,  the Canadian market is expected to break out roughly as follows:

Whether or not these numbers are accurate, in absolute or relative terms, will no doubt be the subject of intense observation and scrutiny over the ensuing 12 months.  As the report suggests, this new Canadian-led industry can be a game-changer for entrepreneurs, job-seekers, innovators, and if well-executed, could go a long way to seeing proper consumer information and safety being given priority, while the black market recedes.  A key finding of the survey was that most Canadians, 6 in 10, are planning on consuming edible cannabis, a product class that won’t even exist on the recreational side for a year.

Based on the experiences of some U.S. states, there is much to be cautious about – unregulated production, concentrations of illegal neighborhood grow-ops and $0 spot market commodity prices.  “Canada is in a unique position as the first G7 country on the cusp of legalizing recreational cannabis,” said Mark Whitmore, Vice Chair and Global Leader Deloitte Private. “The move to legalize recreational cannabis has sparked a wave of innovation and entrepreneurship, similar to Canada’s technology sector, which will create jobs for Canadians, new opportunities for businesses and revenues for governments.”  This is a useful insight.  Canada is really on the verge of a Cannabis Revolution.  Good planning and execution will determine how successful it will be.

The information and opinions presented here are that of the analyst and do not represent the thoughts and opinions of this website.  The analyst does not own or represent any of the companies listed in this article and receives no compensation from any party mentioned in this article. Readers are urged to do their own research and due diligence and should seek advice from an independent financial advisor before making any financial investment.