Canada’s October sales continue record streak with a slight uptick in MoM growth (APHA, CGC, CRON, HITIF, FFLWF)
Canadian adult-use retail sales grew to a record C$270 million in October with sequential growth at 5.1%, a slight uptick from September’s slowed growth of 2.1% MoM. October sales represent an increase of 109.4% YoY, C$2.06 billion in YTD sales, and annualized revenues of C$3.24 billion.
Ontario was the primary driver of growth, with a 31.1% share of October sales and a growing 7.6% MoM. Alberta's province had more subdued growth; Alberta, with a 20.9% share of sales, grew 1.0% MoM. Quebec posted more robust growth on par with Ontario, with a 17.8% share of sales and 6.7% MoM growth.
The Canadian market has shown robust, organic growth throughout the pandemic, especially given lockdowns and a dearth of tourism. However, for Canadian operators, the headwinds are numerous: there is an increasingly crowded competitive landscape with new entrants, an illicit market with relatively light regulation, and declining wholesale prices while providing a temporary benefit to margins makes for an unsustainable environment for positive margin growth. Canadian LPs are still grappling with the country’s oversupply issue, which has led to inventory write-downs, impairment charges, and the paring down cultivation facilities.
Ontario will be going into a second-wave, province-wide lockdown starting December 26th for a minimum of two weeks in northern regions of the province and four weeks in southern areas. Toronto, the country’s largest city, will be under lockdown for four weeks. The province of 14.57 million makes up the largest share of adult-use cannabis sales, comprising close to a third of adult-use sales. Cannabis retail stores will only be open for curbside pick-up or delivery. The Ontario Cannabis Store (OCS) has warned that the legal industry’s market share may be dampened with COVID-19 lockdowns since temporary store closures make the illicit market more attractive to consumers.
Canopy Growth increases stake in TerrAscend pivots away from Canopy Rivers (CGC, TRSSF)
CGC and TRSSF are on the Hedgeye Cannabis LONG Bias List.
RIV has delivered CGC what it was set out to do and help the company navigate the cannabis industry. Canopy Rivers sold its interests in TerrAscend, Tweed Tree Lot, and Vert Mirabel to Canopy Growth at an implied total transaction value of approximately C$297 million. Through this arrangement, Canopy Growth will have increased its ownership in TerrAscend from 13% to approximately 21% of the issued and outstanding shares on a fully-diluted basis. Additionally, Canopy Growth increased its ownership in Vert Mirabel from approximately 41% to approximately 67%. Vert Mirabel is a 700,000 sq. ft. hi-tech greenhouse in Quebec, the largest pink tomatoes producer in North America, and a licensed cannabis producer.
Via this exchange, Canopy Growth will fully retire its ownership interest in Canopy Rivers, which currently represents approximately 27% and approximately 84% of the voting rights, by providing cash payment of C$115 million and issue 3,750,000 common shares in Canopy Growth to Canopy Rivers.
Canopy Rivers was established in 2017 as a strategic investment vehicle for Canopy Growth, helping the company pursue key business opportunities, including the development of the Vert Mirabel greenhouse, which is now an essential component of the Canadian cannabis operations. More importantly, as a result of RIV, CGC now owned 21% of TRSSF, once of the strongest US MSO's. This also highlights how ill-timed and poorly thought out the Canopy-Acreage transaction was. TRSSF has surpassed Acreage and is now a bigger and, more importantly, growing U.S. multi-state operator. CGC continues to put its best foot forward regarding the transaction, but by the time Acreage can reshape and sells some of the current assets it owns, other operators in the US will continue to take market share from the company. Acreage may have been one of the stronger assets in the early days of the Green Rush, but today it is quickly falling behind.
As a result of this transaction, CGC has a better path to capitalizing upon legalization in the US, by its 21% interest in TRSSF. Importantly, we suspect that Jason Wild, the COB of TRSSF, will be an important asset to GCC's way forward in the U.S.
While RIV was up 30% yesterday, it now has nearly $250 million in cash and is in a strong position to enter the US market. The press release was clear where RIV is headed - “As a long-time shareholder of Rivers, I am pleased to support this transaction,” said Jason Wild, chairman of JW Asset Management, which, on closing, will own 23.9% of the common equity of the Company. “As an active investor in the U.S. cannabis market, JW Asset Management recognizes the generational opportunity for value creation in the world’s largest and most attractive cannabis market. With a significant infusion of cash and liquid securities and a new strategic focus, we believe that Rivers will be well-positioned to explore further and potentially capitalize on this vast opportunity.”
Jushi holdings Inc.’s BEYOND / HELLO expands in Illinois (JUSHF)
Jushi Holdings Inc. announced it would open its third retail location in Illinois, making the dispensary it's 13th nationally. The new store location will begin serving adult-use cannabis customers as of today. In Illinois, the state’s November sales of adult-use cannabis surpassed $75 million for a second straight month in a row. While it was a sequential decline of -0.1% MoM, November’s adult-use sales represent YTD sales of $582.2 million and suggest $902.4 million in annualized revenues.
Illinois’s marijuana program caps license at ten. Cresco Labs (CRLBF) is on track to open its tenth, while Green Thumb Industries (GTBIF) has opened eight so far. Jushi still has a significant expansion opportunity in a state that’s likely to clear $1 billion in adult-use sales in its first year running.
