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1. Supply and Demand of Cannabis
Our October 2017 issue had an entire article dedicated to this and our references to these forces dates back to our
first edition. Supply and Demand cannot be ignored. The Consolidation Curve cannot be ignored or avoided.
As the industry grows, so will demand as well as supply. The growth in supply will eventually be greater than the growth in demand until such time that supply exceeds demand. At that time, more companies will go out of business (plain and simple) or be acquired. We should see an increase in M&A activity and perhaps even cuts in production. At some point, as is true with every market, supply and demand will be well managed.
Those that are only now raising “concerns” about the future increase in supply as the equivalent of some sort of doomsday prophecy either do not understand basic Economics or are intentionally trying to be manipulative. It is not my place to call people out but does it matter to you, the investor, whether someone is intentionally trying to manipulate your or just has no clue what they are talking about? Intent or ignorance may have different motives but their impact may be the same. AVOID THEM.
There are of course other demand pressures most do not discuss:
3 Conversion from alcohol. You know from past articles or from your own due diligence that alcohol sales are down as much as 15% in those US States where cannabis has been legalized. Alcohol prices in Canada are typically significantly greater than in the USA. For two years now I have said that this would happen. There are those who claim this will be an immaterial amount and therefore not relevant. The CIBC sides with me it seems.