Cannabis, Take Two

Canadian companies are picking up ‘low-hanging fruit’, while U.S. giants focus on multiplication 

Andrew Willis 1 June, 2020 | 1:48AM
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Cannabis companies took over Canadian markets last Memorial Day Monday, as nearly a dozen names took top spots for gains on the TSX. The industry may be indeed be recovering and resuming Cannabis 2.0, but investors should be aware that Canadian and U.S. markets aren’t on the same growth curves at the moment.

Let’s start with Canada. Companies like Canopy Growth (WEED) having been getting attention for closing production facilities and laying off staff locally, as well as shuttering international operations, but that might have more to do with Canada, than the company. Morningstar Sector Strategist Kris Inton pointed out that year-to-date Canada plays are still down.

That could be reflective of an industry that’s now focused on distribution. Two factors will see legal weed continue to steal market share from illegal pot. Perceptions of quality and safety – especially lately, will inevitably push users to legal sources.

Meanwhile, U.S. companies are still on a steep part of the growth curve and nearing where they were at the start of the year. Companies like Green Thumb Industries (GTII) or Curaleaf (CURA) have a much longer runaway ahead as they expand with the rollout of legalization across the states, Inton says. And in the U.S., there is a greater variety of branding opportunities that include the use of appealing packaging, and there are potentially better opportunities for vertical integration of operations and business lines to drive efficiency with a different competitive framework.

And as far as the recessionary risks go, in the U.S., Inton sees a potential acceleration of legalization with U.S. states that are strapped for a new source of tax revenue. And internationally, he speculates that cannabis industries will share a demand for the product that parallels the alcohol industry – people will probably still smoke in a downturn.

For Morningstar, I’m Andrew Willis. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Aurora Cannabis Inc5.88 USD2.00Rating
Canopy Growth Corp10.09 CAD-0.39Rating
Cronos Group Inc2.44 USD2.95Rating
Curaleaf Holdings Inc5.56 CAD-1.77Rating
Green Thumb Industries Inc15.71 CAD1.75Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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