Penultimate week of this diary, let’s consider the (sorry) state of the Canadian Licenced Producers (LPs).
This week saw the beginning (or end) of another quarterly hot mess of financial results. It is so continuously bad that it has merged into a pathetic pandemic without end in sight. Expect another 10-12 quarters of the same nonsense excuses before steady state operational excellence and financial equilibrium tentatively delivers sustained profitability.
Which means, we will only have 10-ish “major” LPs left standing by 2023. Some bankruptcies, some M&A activity; maybe the odd greenhouse fire – insurance claim – closure routine.
Who will be left standing? Probably the behemoth ones because they have cash on hand and are kinda “too big to fail”, although Aurora is still doing a great job at delivering quarterly results that are worse than the last one. $1.8 BILLION loss, anyone?
If US legalizes cannabis, their marketing regulations will lead the way forward, and it is likely the big brands will win the day.
An LP whose narrative the market seems to have bought is the Pure Sunfarms low cost model, now wholly owned by Village Farms, and they seem to have strong sales in Ontario. They smell like a survivor.
Generally, investor interest will continue to wane, and move on to the next big thing, psychedelics. Starting in 2022-24, psychedelics will be just as big as cannabis in terms of media stories, social acceptance, public companies, and the same Health Canada challenges about marketing.
The vaguely good news: cannabis will continue to move recreational from medical, simplifying the LP business model. And the illicit market is slowly being beaten, and in another 3 years the legal market will have 80% of the market share. Eventually, some LPs will make a lot of money.
This Much We Know.