Cannabis oversupply in Canada ‘may be closer than some expect,’ bank warns

One of Canada’s prime banks acknowledged the rocky begin for the adult-use hashish business, however nonetheless expects to see “substantial growth” for the remainder of the yr as provide constraints are alleviated.

Scotiabank additionally warned that the hashish market will turn into closely oversupplied in the medium- to long-term.

“Producers we have spoken to are generally aware that the industry will eventually be oversupplied, but there is a degree of complacency since few think the market will become oversupplied any time soon or that they will be the ones unable to sell their product,” analyst Oliver Rowe wrote in the report.

“We understand why producers have overbuilt, but that doesn’t change the fact that not all this capacity will be needed.”

Export volumes are usually not anticipated to meaningfully offset oversupply.

“While several sources have indicated undersupply will last three to five years, the data suggest otherwise,” the report said.

The report isn’t overly damaging, and the bank stays bullish on the nascent business.

Scotiabank referred to as Canada’s early adult-use hashish gross sales “disappointing” – even acknowledging its estimates have been too optimistic – however the bank says that’s mirrored in deferred demand progress.

Legal hashish gross sales this yr might attain 259,000 kilograms, in response to its estimate, which is 4 occasions larger than the full for 2018.

The report cited the potential of hashish to supply “widespread disruption.”

Canada’s well-capitalized marijuana companies ought to be capable of faucet into enterprise strains reminiscent of:

  • Export for brand spanking new medical markets.
  • Ingredients in meals and drinks.
  • Topical sprays and lotions.
  • Pharmaceutical merchandise.
  • Medical purposes.

The bank stated regulatory tendencies are shifting towards partial or full legalization, each in the United States and globally.

“In our view and if regulations permit, the U.S. recreational market (CA$50 billion or more) and international medical markets – CA$3 billion to CA$12 billion – offer the most lucrative future opportunities,” Rowe wrote.

Other business catalysts embrace:

  • More medical insurance overlaying medical hashish.
  • ‘Transformational’ mergers and acquisitions.
  • Clarity in Canada over post-legalization gross sales.
  • The introduction of edibles and drinks.
  • Improved distribution channels increasing the market measurement.

Risks abound, nevertheless, together with:

  • Possible inaccurate market-size estimates.
  • A persistent illicit market.
  • Pricing strain from elevated competitors.
  • Regulations not holding tempo with business progress in different nations.
  • Unfavorable laws.

Rowe provided this necessary caveat: “If producers can’t deliver on promises in the Canadian market, we think the probability of them delivering globally will be reduced as well.”

In the report, the bank initiated protection of Aurora Cannabis, CannTrust, HEXO and Organigram.

Matt Lamers can be reached at [email protected]


Reference

Be the first to comment

Leave a Reply

Your email address will not be published.


*