Canada's Cannabis Market So Far

Joe Weisenthal (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal, and unfortunately, my colleague and co-host, Tracy Alloway, is out this week, so you'll have to just listen to me solo.

But I'm excited about today's conversation because it's a follow-up to one of our episodes that we did a few months ago. So if you recall, in mid-October, Canada legalized recreational cannabis that coincided with a boom in stocks relating to cannabis, lots of interest in this, but still so much uncertainty about how the market would actually play out and who would really make money and what kind of margins there would be and just what kind of rollout there would be in general of the operations of legalized recreational marijuana in Canada.

And so a few months ago, we talked to Craig Wiggins. He is a part of a trio of analysts known as the Cannalysts. They have a popular Reddit page called the Cannalysts where they do pretty serious deep dive financial analysis of the publicly traded cannabis companies. They have a very big following that's grown over time and they do events and podcasts and other stuff. Really become, they've become the sort of go-to destination for serious analysis of these companies. And so we talked to Craig right before the legalization, right before Recreational is about to come out. And so we wanted to go back and talk to Craig again about what he's learned and what he's seen in the first few months of the recreational market in Canada. And so we have him back now. Craig Wiggins, thank you very much for joining us.

Craig Wiggins (1:55)

Thank you very much for having me. I hope I'm not the reason Tracy didn't show.

Joe Weisenthal (2:00)

Yeah, you are. I said, Tracy, we're gonna have Craig back. And she's like, oh, I got food poisoning last night. Suddenly, I can't do it. No, she wishes she could do it. But due to the time zone, she's in Hong Kong. She couldn't make it this time.

So what's your overall, you know, you warned a lot about a lot of different things when we talked about the market and the impending legalization of recreational and the fact that, you know, there's just all kinds of issues with the supply chain, the sort of the separation between the distributors and the retailers and the provinces putting themselves in the middle.

What have you seen so far? How smooth has the rollout been?

Craig Wiggins (2:46)

Well, I'm not sure the age of your listeners, but the term gung show would probably be apropos for how adult rec has been rolled out throughout Canada.

Joe Weisenthal (2:57)

Okay, so I take that as a negative. What has been the biggest problem so far?

Craig Wiggins (3:04)

I think there's a multitude of problems, and we have no shortage of people pointing fingers at each other. In Canada, we have two distinct streams with respect to cannabis. We have the medical cannabis, and we have the adult rec. The medical cannabis is all done online and shipped directly from an LP, a licensed producer who's licensed by Health Canada, direct to patient.

Or Shoppers Drug Mart, Canada's largest drugstore chain, has gotten involved in distribution of cannabis, but not from the retail stores, again, all online. The rec side, each province in Canada is responsible for rec distribution.

Most of them, I think nine out of the 10 major provinces, is all elected to be the wholesaler of cannabis.

And some of them elected to also be the retailer of cannabis. And each province is different. So we really have a patchwork of different models throughout Canada. And what we've really seen is the theme that we've heard from the provinces who are strapped for inventory, so much so that the Quebec government, who's actually running their own retail stores, have closed their retail stores Monday through Wednesday because there's not enough product. New Brunswick's a similar situation. Alberta stopped issuing new retail licenses. In Alberta, it is private distribution, even though the government sees the need that they have to receive the product before distributing it to the retail. So it's really been a patchwork. And most of those provinces have not done a very good job of their retail rollout, whether it's private or government run.

Joe Weisenthal (4:52)

That's just what I was about to ask. Of the two main models, neither one is looking particularly good right now.

Craig Wiggins (5:01)

Yeah, and that's where some of the finger point comes in. A lot of the provinces said the LPs, the licensed producers, over-promised and under-delivered.

And there was a lot of over-promising going on. The term funded capacity was bandied about greatly in the industry because it really grew stock price.