Cannabis Sales Suddenly Slow

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This week Canada released its retail cannabis sales for November, showing a sharp decline in the year-over-year growth rate from 109% in October to 93%. Similarly, BDSA data for 8 states in the U.S. showed declines in the YoY growth as well:
While one month’s data shouldn’t be a reason for great concern, we are trying to understand if the torrid growth rates during the spring and summer may be slowing. Demand for cannabis has picked up for a variety of reasons, including increased consumption but also a shift from the illicit market as curbside pickup and delivery options along with increased electronic payment alternatives have become available. Expanded distribution has helped drive growth in California and Canada.

Beyond demand coming down to more consistent long-term growth levels, one factor that could be playing a role is pricing. We don’t think falling prices are a factor in any of these markets except for Canada. The increasing number of cases of COVID-19 as the weather turned cooler may have played a role, and perhaps the elections in the U.S. distracted consumers. A factor that should have boosted growth rates is that the vape crisis depressed sales to some degree a year ago.

Whatever happened in November, we have evidence that December was a better month, at least in two of these markets for which we have data. Arizona publishes unit volumes. In October, unit growth was 27.9%, but it slowed in November to 15.5%. December unit growth accelerated to 25.2%. Illinois published its revenue for both medical and adult-use for December, and combined revenue accelerated to 343.5% during the month.

It’s not yet clear if demand growth will continue at the same pace that these states have experienced, but the industry growth rate is based not only on this dynamic but also new states coming on line as well medical-only states expanding access by allowing additional form factors or adding new qualifying conditions. Several new medical programs have recently launched, and, of course, Arizona just set the record for the shortest time to first legal sale after a ballot initiative for adult-use passed.

We are anxiously awaiting December updates across the other markets, as investors may become concerned if the pronounced slowdown in November is more than temporary. In a few weeks, BDSA will release its data for December, and we will provide an update.

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We were saddened to learn this week of the passing of David Wenger, who was an advocate for legalization and an investor in the industry. He served as a Director of Body & Mind, General Counsel for Harmony Foundation and as an advisor to Asia Horizon. Some readers may recall the very popular white-paper he published in 2018, Making the Case for Investment in the U.S. Cannabis Industry. A memorial fund has been set up on behalf of his family. David will be missed greatly.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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