Calgary: Canada’s ‘Cannabis Capital’

Calgary: Canada’s ‘Cannabis Capital’

As Canada’s retail cannabis sector evolves in an uneven manner (province to province), one Canadian province is sending a clear message that it is “open for business” – Alberta. With the recent lifting of a provincial moratorium on new cannabis stores, this already-robust retail footprint is about to get much larger. A June 4, 2019 article from the CBC frames the picture here.

Calgary already has 29 cannabis stores. Ready for 25 more in the weeks ahead?

With the provincial government’s decision to lift a moratorium on new stores, it’s expected to clear five new stores to open in Alberta each week as pot supplies improve.

To put this into context, right next door in British Columbia, there is currently only one legal cannabis dispensary in the entire Downtown Vancouver area. In contrast, Calgary already hosts one-third of that province’s retail cannabis outlets. As the CBC reports, this is just a starting point.

…And just wait. More stores are coming. A lot more.

“We have 197 development permits that have been released as of the end of May, meaning that those are stores that have their land use approval from the city,” said Zabloski.

The only thing standing between these 197 permits becoming 197 more cannabis stores is approval from the Alberta Gaming Liquor and Cannabis Commission. The recent moratorium was put in place to respond to supply shortages. Assuming that there is an adequate cannabis supply, all indications are that the province intends to proceed quickly in further opening up the legal cannabis industry.

(A recreational cannabis container from Tweed Inc. (Canopy Growth Corp) purchased in Alberta in 2018)

This makes Alberta one of the few Canadian provinces that can genuinely be seen to be fulfilling the self-declared mission of both the federal and provincial/territorial governments: to expedite the transition away from black market cannabis commerce. Here Canada gets an overall failing grade.

Despite the legalization of recreational cannabis at the national level in October 2018,  a February 2019 article from Vice quotes Scotiabank analysts as projecting that 72 percent of recreational cannabis sales in Canada in 2019 will still be black market cannabis.

The article adds that Scotiabank sees this number dropping to 38 percent by 2020 “after temporary logistical issues get ironed out.” However, given the lethargic manner in which some of Canada’s larger provinces are proceeding with cannabis normalization (notably Ontario and British Columbia), this projection looks optimistic today.

Other provinces are being much more proactive (and successful) in executing the transition to legalized cannabis. In addition to Alberta, the province of Quebec also earns high marks.

The Société Québécoise du Cannabis (SQDC), the provincial agency responsible for retail cannabis distribution in Quebec set an initial goal of 20 retail cannabis stores in operation by November 2018. The province also made a commitment to “fair prices”, to encourage consumer movement away from the black market.

One way to measure the success of legal retail cannabis in Quebec is by looking at the province’s single-largest distributor: HEXO Corp (TSX: HEXO, NYSE American: HEXO). HEXO has signed a $1 billion distribution agreement with the SQDC, to date the largest single distribution agreement in the cannabis industry.

After hitting a bottom on December 24, 2018 of CAD$4.31, HEXO peaked at CAD$11.11 at the end of April. It’s given back ground since then in line with the general pullback in stocks, but clearly retail cannabis in Quebec is a success story.

For the cannabis companies that are concentrating on Canadian retail, this presents a strategic decision. Focus on the markets that already have large, robust retail networks – like Alberta – or look to position themselves in some of the under-achieving jurisdictions, where there is more overall potential for growth?

One of the companies that is aggressively targeting Canadian retail cannabis is Choom Holdings Inc. (CSE: CHOO, OTCQB: CHOOF). While individual companies may have differing ideas on a cannabis retail strategy, there are two areas where all of these management teams can agree:

  • There are already substantial revenue dollars in play in Canadian retail cannabis
  • With most recreational cannabis dollars still flowing to the black market, there is enormous growth potential in legal Canadian retail cannabis

A CNBC interview with Brinks CEO Douglas Pertz offered his numbers (and thoughts) on the Big Picture for cannabis today: a $160 billion global industry, but “probably only 10% of that’s legal”. The Seed Investor provided separate coverage on that story.

The retail potential in Canada is immediately magnified once Phase 2 of Canada’s legislative move toward full cannabis legalization kicks in. On October 17, 2019; cannabis “edibles” and other infused and derivative cannabis products are scheduled to be legalized. A recent report from Deloitte Canada pegs this emerging market for “next-generation cannabis products” at $2.7 billion.  This is in addition to Deloitte’s current estimate of the Canadian cannabis market at $6 billion.

Billions of overall revenue dollars are up for grabs, with tens of millions (hundreds of millions?) of potential tax revenue dollars for revenue-starved provincial and territorial governments. This means there is an enormous economic incentive for governments to get it right and move quickly in normalizing cannabis commerce.

As cannabis investors ponder the somewhat underwhelming evolution of retail cannabis in Canada to date, the numbers here are clear. The best (by far) is yet to come.

FULL DISCLOSURE: Choom Holdings Inc. is a paid client of The Seed Investor

Published at Wed, 05 Jun 2019 19:26:31 +0000

Filed in: News

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