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Canadian Cannabis Stocks Are Becoming Less Desirable Investments, Data Suggests

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Canadian Cannabis Stocks Are Becoming Less Desirable Investments, Data Suggests

Cannabis stocks have taken a hit since Election Day, Nov. 3.

The latest Hifyre cannabis sales data out of Canada suggests some concerning trends in the market.

The Numbers: Month-over-month, Canadian retail cannabis sales were up just 4% in October and down 3% in November, Hifyre estimates.

Cantor Fitzgerald analyst Pablo Zuanic said top Canadian cannabis companies appear to be losing market share as competition rises. In December 2019, Aurora Cannabis Inc. (NYSE: ACB), Aphria Inc. (NASDAQ: APHA), OrganiGram Holdings Inc. (NASDAQ: OGI), Tilray Inc. (NASDAQ: TLRY) and Canopy Growth Corp. (NASDAQ: CGC) accounted for a combined 59% of total Canadian market sales. In November, that combined market share had dropped to just 38%.

Related Link: 3 Reasons Marijuana Stocks Are Soaring

Aphria is having the best fourth quarter so far, with sales in October up 14% compared to the previous quarter’s run rate. Canopy sales are also up 4% quarter-over-quarter so far, while Organigram and Aurora’s sales are down 13% each.

Pricing Pressures: Perhaps more troubling for cannabis producers is that Canadian flower prices have stabilized at around $5 per gram, between half and a third of the price levels currently seen in the US market, according to Zuanic.

“Net, big picture, low prices (and low margins) and share loss make us think our coverage group may not benefit as much as expected from an eventual market growth acceleration in Canada (as more stores open, and retailers become more sophisticated, partly on consolidation), and a war of attrition of sorts may play out (happening now),” Zuanic said.

Canadian cannabis companies are increasingly needing exposure to international medical markets, access to the US market, and more diversified product offerings to avoid “becoming less desirable investments.”

Zuanic’s top two Canadian cannabis stock picks are Aphria and Organigram.

Benzinga’s Take: Canadian cannabis stocks have been soaring since the US election, but they are still significantly lagging many top US multi-state operators year-to-date due to sluggish growth and pricing pressures in the Canadian market. The catalyst that could completely change the industry is full U.S. federal legalization, and the Canadian companies with the positioning and capital to gain a first-mover advantage in the U.S. market could end up being the biggest long-term winners.

Latest Ratings for ACB

DateFirmActionFromTo
Dec 2020BMO CapitalDowngradesMarket PerformUnderperform
Nov 2020JefferiesDowngradesHoldUnderperform
Nov 2020StifelDowngradesHoldSell

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