Get Ready for Some Volatility

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Several months ago, we saw a substantial slowing in cannabis sales across North America. With the strong bounce back in December and January, we thought that November’s data was noise. February data from BDSA released last week, though, suggested that there was an even more profound year-over-year decline in February. Part of this could be that last year’s February had an extra day, but, even accounting for this, the year-over-year growth in February was substantially lower than in many months. In some cases, it was the slowest growth since the pandemic began. It was particularly slower in the West:

To be clear, growth rates remain high in these Western states, but this was the lowest growth in a year for Oregon, and the lowest in many months in California and Colorado. It’s important to consider that the lack of tourism could be playing a role to some degree. Note that even in newer states, like Maryland and Massachusetts, the growth slowed. Maryland’s 50% growth rate was the state’s slowest to date.

This week, we will learn from Statistics Canada how the nation’s February sales fared. Hifyre estimates that there will be a sequential decline of 8.5% to C$259 million, which would reflect slight growth compared to January on a per-day basis. This level, however, would represent 70% growth from a year ago, the lowest level to date. Hifyre’s March estimate suggests a further slowing as well, to 68%:

Last month, we suggested that future sales growth rates might be impacted by lower per capita consumption rates. During the pandemic, most consumers found themselves with extra disposable income, a lot of extra time and a high level of anxiety, all of which were likely contributing factors to the very strong growth the industry experienced in the back half of 2020. Looking ahead, with the economy opening up, some consumers may reallocate a portion of their disposable income into dining out, travel and other pursuits.

While a potential slowdown in per capita consumption is a headwind potentially, we believe many other factors will help drive continued robust sales growth for legal cannabis. A major change took place in 2020, with legal cannabis providers able to provide online ordering for pick up and delivery, which likely helped drive consumers from the illicit market. The strong demand for flower across all markets was strong evidence that this was the case. We believe ongoing conversion from the illicit market will be a major trend for years to come. Other drivers of growth for cannabis operators include more states legalizing for adult-use, more cities and counties permitting retail stores and, for leading MSOs, the ability to consolidate existing operators at favorable prices.

Investors should prepare for some potential volatility in cannabis sales growth in the months ahead. The pandemic and the timing of stimulus checks will play an important role in near-term spending trends on a per capita basis. As we shared, there was some very good news already for March in Illinois, which saw adult-use sales triple compared to a year ago. Florida data as well continues to show robust growth in enrollment in its medical cannabis program, which is growing by about 1% per week. In the most recent week, the registered patient count grew 58% from a year ago to over 527K. Year-to-date unit sales of THC products are 90% higher than a year ago, while flower sales have increased by 130%. No signs of slowing there!

Cannabis sales soared in 2020, and the growth, while potentially slower on a per capita basis, will continue to be robust in 2021 in our view, as the supply of legal cannabis and the points of distribution expand within existing and new legal cannabis markets. Sales growth may suddenly slow in certain months ahead compared to their year-ago levels, as it did in November and now again in February, but we think that it will be important to not draw conclusions on the basis of just one month of data.

Invest in Leading Cannabis Companies
This week’s newsletter is sponsored by Global X

While federal prohibitions complicate the business landscape, it is still possible to invest legally in cannabis. The Global X Cannabis ETF (POTX) delivers exposure to a variety of publicly listed cannabis companies from around the world in a single trade. POTX is listed on Nasdaq and can be accessed from leading brokerage apps. Learn more.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

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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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