Canadian weed sales in July hit a new all-time high
How has Canada fared since adult-use weed sales were launched? Let's take a month-by-month look at licensed-store sales, as recorded by Statistics Canada (all data is reported in Canadian dollars, with U.S. dollar equivalency in parenthesis).- October: CA$53.68 million ($40.48 million)
- November: CA$53.73 million ($40.52 million)
- December: CA$57.34 million ($43.24 million)
- January: CA$54.88 million ($41.39 million)
- February: CA$51.66 million ($38.96 million)
- March: CA$60.94 million ($45.96 million)
- April: CA$74.58 million ($56.24 million)
- May: CA$85.81 million ($64.71 million)
- June: CA$91.46 million ($68.97 million)
- July: CA$104.5 million ($78.80 million)
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Here's why Canada's recreational cannabis launch has been a disappointment
Although CA$1 billion in dispensary sales would be nothing to sneeze at in Canada's first full year as a legalized marijuana market, it's actually quite disappointing considering the expectations Wall Street, investors, and the pot stocks themselves had coming into this launch. This disappointment can be boiled down to a handful of factors. For one, regulators have proven ill-prepared to handle the legalization of recreational marijuana. Admittedly, there is no precedent for legalization within an industrialized country, so Health Canada doesn't deserve all of the blame here. But there's no denying that it and select provinces have played a key role in minimizing legal marijuana sales. You see, when the year began, Health Canada had more than 800 cultivation, processing, and sales applications on its desk for review. On average, these reviews were taking many months if not longer than a year to complete, which ultimately kept cultivators, processors, and retailers waiting in the wings to meet demand. The same can be said for select provinces, which have been slow to approve licenses for physical retail stores. With certain provinces having few physical locations in which to buy marijuana, consumers have been forced to buy online and wait for their product to arrive, or they've simply purchased from illicit producers. There have also been compliant packing shortages throughout Canada. These shortages have left cultivated but unprocessed cannabis sitting on the sidelines. Even the growers are somewhat to blame. By waiting until the Cannabis Act was a certainty to pass before spending big money on cultivation expansion, most pot stocks are now scrambling to complete grow facilities and get them fully licensed.
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Supply issues won't be resolved anytime soon
Maybe more worrisome than the subdued launch of recreational marijuana in Canada is that while all of these issues are fixable, none of them are expected to be resolved anytime soon. In fact, Aurora Cannabis (NYSE:ACB), Canada's largest producer by peak annual output, noted in its fiscal fourth-quarter operating results that it's done what it can to improve efficiency on its end, but is as the mercy of supply issues that are beyond the company's control at the moment. Canada may be a cannabis pioneer that other industrialized countries follow, but its publicly traded pot stocks also have some of the highest premiums thanks to Wall Street's and investors' unrealistic expectations built into this next-big-thing investment. This slow start to adult-use pot sales firmly exposes some of the largest and best-known Canadian cannabis stocks to significant downside. For example, Aurora Cannabis recently wound up missing its own sales guidance that had been issued five weeks prior to its report. The company had also been hinting at recurring positive adjusted EBITDA in Q4 2019 since the beginning of calendar 2019. However, when Aurora reported its fiscal fourth-quarter results, the company's adjusted EBITDA remained negative. Any hope of near-term profitability for Aurora Cannabis, at least on an operating basis, have been dashed. Aurora's peers Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON) are even pricier by certain metrics, and may offer considerable downside.
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