Reading the numbers
While everyone acknowledges Cannabis is a growth industry, monitoring the top level consumption trends may help us understand how the future may unfold. Industry growth statistic from Stats Canada gives us the best picture of what is going on.
If you are an investor, this is a valuable source of information used for building forecasting models. In addition to the National Cannabis Survey, Stats Canada also provides Cannabis consumer prices and cannabis supply. Check it out here at Cannabis Stats Hub.
What does it tells us?
Approximately 16% of Canadians used cannabis in the last 3 months. Of the 16% of Canadians who consumed cannabis, 25% spends over $250 over the last 3 months, or approximately 4% of the population. This is important because the main economic driver is a small percentage of the population and understanding their consumption preference is critical to success. (To be covered in another section.)
Add Cannabis consumption Q3/2018
An excerpt from the recent publication by Stats Canada on Cannabis consumption, “In nominal terms, at annual rates, Canadians spent $5.9 billion on cannabis products in the third quarter. Of this, 83.9% or $4.9 billion was purchased illegally for non-medical use. This proportion has fallen from 98.0% in the second quarter of 2014, reflecting increases in cannabis consumption for medical use. An estimated 1.9% of this consumption was from home production for own non-medical use.
Spending on cannabis for medical purposes totalled $836 million, representing 14.2% of the total. This includes $88 million of home production of cannabis for own medical use.”
The take away
The size of the Cannabis market is significant at $5.9 billion in the quarter or approximately a $20 billion Canadian cannabis market. How fast can it grow and to what size?
We know that many of the craft growers supplying the grey market have stop production in a bid to go legal, which requires them to stop the illegal activity first before applying. (This may have changed in the last few weeks?) The difference between the grey market size and the legal market size is substantial meaning it is not reasonable for the current LPs to fill the void, a grey market that is five times larger.
We can only conclude the supply shortage should persist for the next 12 months. In short, the bad producers would not suffer through a lack of revenues because there is a shortage. Unfortunately, a rising tide lifts all ships.
There is enough information and numbers when combined with the companies’ financials, we can develop a reasonable model to value the cannabis companies.