Cannabis Investments Continue as Canadian Legalization Contributes to Global Revenue

Canada recently legalized cannabis nationwide on October 17th, 2018, becoming the only G-7 nation to do so. The country’s legalization had thousands of customers flocking to retailers both at physical locations and online. Within the first hour of launch, Canada saw hundreds of thousands of sales, said Loren Padelford, Vice President of Shopify (NASDAQ: SHOP), according to CBC News. The demand outpaced supply heavily, which left many online retailers to run out of stock quickly. Online retailers were much more popular during launch due to the limited amounts of physical retail locations. The large influx of customers online led many businesses to run out of stock as quickly as within a few hours.

Many cannabis retailers were flooded with customers eagerly waiting to purchase cannabis legally. In Nova Scotia, government-owned, Nova Scotia Liquor Corporation, saw over 12,000 transactions at its brick-and-mortar locations and its online store. NSLC says it totaled up to CAD 6660,000 in revenue, including CAD 47,000 online sales. British Columbia only had one store open, but the single store alone recorded 795 transactions, while British Columbia’s online cannabis stores reported over 9,000 orders. In Prince Edward Island, where only three stores were open and one online store, sales totaled about CAD 152,000 after tax. Only CAD 21,000 accounted for online sales. On the other hand, Albert saw a surge in online demands, the province reported approximately 8,300 transactions, totaling about CAD 730,000.

Although Canada saw strong demand for cannabis within the first day of launch, the market’s growth is attributable to the U.S. According to a report by Grand View Research, the U.S. legal marijuana market size was valued at about USD 7.06 Billion in 2016 and is expected to grow at a CAGR of 24.9% from 2017 to 2025. Globally, the market is projected to reach USD 146.4 Billion by 2025. The U.S. currently boasts only 9 states and the District of Columbia to have legalized cannabis entirely. In those states, recreational cannabis sales marginally outpace medical sales, but the medical segment still remains the largest globally, due to the prohibition of recreational cannabis. States such as California, Colorado, Nevada and Washington have reported over USD 1 Billion in sales annually, which have led many Canadian-based cannabis companies to explore the U.S. market.

Large corporations have already entered into the U.S. market and some have already invested. Major corporations such as Canopy Growth Corporation (NYSE: CGC), Tilray (NASDAQ: TLRY) and Cronos Group (NASDAQ: CRON) have become investment opportunities. Arcview Market Research, in partnership with BDS Analytics, indicated that Canopy Growth became the first cannabis-based company to reach the USD 5 Billion market capital in 2017. Canopy Growth’s remarkable growth led to Constellation Brands (NYSE: STZ), a major alcoholic producer, to take a 10% stake in the Company. The two will look into developing and producing CBD-infused beverages, which is becoming a highly popular sub-segment of the recreational sector.

Constellation Brands’ investment into Canopy highlights the impact of cannabis, which has led other major companies to explore the industry. Companies such as Coca-Cola (NYSE: KO) and Molson Coors Brewing Company (NYSE: TAP), both major beverage producers, are also looking into to cannabis-infused beverages. The problem that has hindered the growth of the cannabis market is prohibition, leading to many companies to take the stance to avoid the sector. Once legalization is implemented in Canada, it could open opportunities to many more companies to look into the industry.

Although major corporations have already solidified their positions within the cannabis market, there is still much room for the market to grow as regions change their regulatory rules. States such as Colorado are already saturated, making it harder for smaller companies to compete, but states such as Massachusetts are still in their infancy stage. States like Massachusetts and states pending voting are highly attractive to smaller businesses and many companies have already begun their expansion early on, such as CLS Holdings USA, Inc. (OTCQB: CLSH). CLS previously announced a USD 40 Million private placement, which will be used to fund the loan payments to In Good Health Inc., a Massachusetts-based medical dispensary, and construct its Leicester facility, its Massachusetts cultivation site. Although, the Company primarily operates out of its dispensaries in Las Vegas, the funding allows CLS to reach a new market.

Canada’s legalization of cannabis can be a major turning point for the industry. The historic event is now leading many countries to explore opportunities within the market. Within the U.S., states are slowly beginning to ease on regulations and will eventually look to legalize cannabis. The cannabis market still has much more room to grow. As legalization of cannabis begins to spread, it highlights the mass widespread appeal that cannabis has.

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2 Comments
  1. Michelle Gonzo 3 weeks ago
    Reply

    it’s a very expensive business to be in, cannabis. I’d love to be in Canada; so when we can afford a CA license, approved facilities, staff, a crop of weed,and Canadian-compliant packaging – then we’ll be there. But people don’t realize how thin margins are.

  2. Viktor Ferrera 3 weeks ago
    Reply

    Canadian legalization was only a week ago. It’s going to take some time for profits to continue to magnify. Once financials show the explosion that started Wednesday, it will come. Patience is key in this sector right now, unless you daytrade.

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