Deloitte, the leading professional global services network in terms of revenues, reported that Canadian cannabis companies will spend a maximum of $7.17 billion in 2019. These enterprises are expected to boost consumption by 35% following the legalization of recreational weed. Legitimate recreational sales can produce around $4.30 billion in purchases. This will account for ½ or more of total marijuana sales. However, the black market still has a value of more than $1 billion annually.
Canada and the United States
The legal cannabis industry in North America and the USA continue to thrive. Long-term forecasts remain buoyant. Stakeholders believe sales will rise over five times within 10 years. This will be from almost $10 billion last year to $47 billion in 2027. Annual sales are projected to go up to $75 billion in 2030. The changing public opinion regarding pot for medical use will bolster sales even more.
Even then, investors must realize the truth about short-term markets. According to cannabis stock estimates, profits will be slight or non-existent per share from 2018 until 2019. What will happen if stocks do not make a profit for the rest of the year? Is it possible for cannabis companies to go bankrupt by 2019? Oversupply remains a valid concern. The leading Canadian firms are preparing for any eventuality.
- Canopy Growth plans to add 4 million square feet of greenhouse area.
- Organigram will expand its facility in Moncton (New Brunswick) to increase the yearly output of 113,000 kilograms.
- MedReleaf just purchased almost 2,000 acres of land to augment its current annual production of 140,000 kilograms.
- Aphria merged with Double Diamond to come up with 230,000 kilograms every year.
Meanwhile, Wall Street remains silent about profit projections for cannabis stocks. Three factors affect complete Earnings per Share (EPS) estimates for 2019. Even the most profitable marijuana enterprises lack positive cash flow. In other words, these firms do not have enough capital to finance huge expansion projects.
Majority of Canadian weed stocks make use of publicly-traded firms to sell common stocks. The purpose is to solicit capital for said projects. Therefore, these corporations acquire higher unpaid shares because of this development. Aside from oversupply, another factor is shareholder dilution or reduction.
The cannabis sector has very limited access to fundamental banking services which include lines of credits and loans. Most of these cannabis companies opt for common stock offers, stock options, and warrants to produce the necessary capital. These options boost the remaining share count. It dilutes shareholders in the process which makes it difficult for enterprises to earn substantial per share returns.
On the other hand, cannabis oversupply can bring down per-gram prices in North America. The excitement resulting from marijuana legalization in Canada will certainly not last long. In the United States, weed prices have gone down considerably in the states of Colorado, Oregon, and Washington. In Canada, production can reach a maximum of 2.3 million kilograms in 2020. Demand remains between 800,000 and 1 million kilograms.
With these trends, it is not far-fetched that some or many cannabis companies can become insolvent starting next year. Which companies will survive? Canada’s Cannabis Wheaton continues to prosper. Big Tobacco and Big Pharma are likely candidates together with Canopy Growth Corporation and Aphria. In the USA, Scotts Miracle-Gro is one of the sure contenders to survive the odds. Include GW Pharmaceuticals in the list. The future remains upbeat after all.
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