Another Day, another Marijuana Cut in Canada

At this time last year, investor hopes for the cannabis industry were pretty high. Canada has just become the first industrialized country in the modern era to legalize recreational marijuana in October 2018. Derivative pot products looked to be less than a year from hitting dispensary shelves in Canada, and multiple U.S. states were in the process of green lighting medical cannabis or recreational pot.

 

Canadian marijuana stocks have been a buzzkill in 2019

A combination of regulatory and procedural issues to our north has insured that legal-channel marijuana has been kept off the shelves. For instance, regulatory agency Health Canada entered 2019 with a report backlog with more than 800 cultivation, processing, and sales licensing applications waited to be reviewed. Given the arduous procedure needed to vet each company and facility, this multiple-month review process has significantly grown in length. Aphria’s joint facility Aphria Diamond facility recently took at least 18 months to gain Licensing approval to grow cannabis. It’ll be some time before the agency is anywhere close to eliminating the licensing application backlog.

There have been serious issues with the rollout of physical dispensaries in certain provinces, especially Ontario. Canada’s most populous province had a mere two dozen open dispensaries a full year after recreational marijuana was legalized, which equates to one retail store for every 604,200 residents in the province. That’s nowhere near enough dispensaries to adequately meet consumer demand, and it’s having an adverse impact on the industry.
Here’s a real beneficiary of these supply issues: the black market. Statistics Canada recently reported that black market cannabis was 45.4% cheaper than legal-channel marijuana on a per-gram based during the third quarter. Even with a reasonably low federal excise tax, Canadian pot growers are having a hard time competing with this huge price gap.

Another Canadian cannabis stock is cutting its production

With Casiano pot stocks facing an odd situation of oversupply in a number of provinces despite the fact that most consumer demand is not being met by legal-channel product, multiple growers have announced production cuts.
It began with The Green Organic Dutchman (OTC:TGODF) in October. Green Organic Dutchman has told investors earlier in the year that it was on track to eventually hit 219.00 kilos of peak annual output, placing it among Canada’s top five growers. In the recent corporate update, the company noted its intention to utilize only four grown rooms at its flagship valley field property in 2020, as well as griwbroom at its Ancaster campus. Green Organic Dutchman expects to years 20,000 to 22,000 kilos next year, which is 1/10th of its peak potential.
Not long after that, Quebec-based Hexo (NYSE:HEXO) announced production cuts. In an effort to better align company costs with current market conditions, HEXO has decided to cut 200 jobs, as well as idlenits Niagara grow farm, which was acquired with its Newstrike Brands purchase. Despite forecasting 150,000 kilos of peak annual production, HEXO’s run-rate output in 2020 is probably going to be closer than 80,000 kilos.
Next was Aurora Cannabis (NYSE:ACB), the worlds most popular pot stock. Also aiming to conserve capital, Aurora plans to utilize only six grow rooms at its flagship Aurora Sun campus in Alberta, and will completely idle its under-construction Aurora Nordic 2 facility in Denmark. These grow farms were expected to generate at least 230,000 and 120,000 kilos for Aurora Cannabis respectively, once fully operational. Now, Aurora Cannabis’ run-rate output by the end of 2020 has been cut in half.
Then there was OrganiGram Holdings (NASDAQ;OGI), the newest Canadian cannabis stock to cut production. On Monday, Nov, 25, New Brunswick-based OrganiGram announced that it would be halting phase 4c construction at its Moncton facility. Phase 4c was expected to increase OrganiGram’s output 24,000 kilos at full capacity. Assuming the company achieves full licensing for phase 4B, it’ll be operating with an annual run rate of 89,000 kilos, as apprised to the 113,000 kilos at full capacity. That management has touted.
Altogether, and inclusive of CannaTrust’s cultivation and sales licensing being suspended, around 1 million kilos of peak annual output have been removed from the Canadian marketplace for 2020.

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