2021 has been a banner year for the global cannabis industry and we are bullish on how the industry has advanced so far this year.
As we approach the last month of the year, we want to highlight 10 key developments that were reported in the back half of the year. We expect these developments and trends to be of interest in 2022 and believe our readers should be aware of this.
- In October, Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) reported a major development and entered into an agreement to acquire Wana Brands, a leading cannabis infused edible brand in the US. As part of the transaction, Canopy Growth will make a $297.5 million (USD) upfront cash payment for the right to acquire 100% of the cannabis edible brand. Before the end of 2022 calendar year, Wana expects to have license agreements in place in more than 20 states. The acquisition provides Canopy Growth with more leverage to the US and we believe the business would be a major beneficiary of federal legalization.
- During the last year, we have seen increased interest in the European Union (EU) cannabis market and this is a trend that we expect to continue. With a change of leadership taking place in Germany, we believe the legalization of recreational cannabis is a likely development in the EU’s largest market. If Germany passes legislation to legalize recreational cannabis, we expect the development to have a domino effect where additional countries in the EU would follow its lead.
- The United States (US) has become a hotbed of activity for the cannabis industry and recorded major advancements in 2021. After the opening of several new medical or recreational state markets, the amount of cannabis that has been sold in the US has surged higher. A key metric for our analysis of the US cannabis industry is the number of states that have sold more than $1 billion of cannabis in a calendar year. So far this year, a few states joined the $1 billion+ club and we are bullish on the long-term outlook of the US cannabis industry
- In late 2019, Health Canada started to allow for the sale of cannabis 2.0 products in provinces across the country. The products that are in this category include: edibles, vape pens, beverages, concentrates, and more. The cannabis 2.0 vertical has been one of the few bright spots of Canada’s cannabis industry in 2021 and the biggest beneficiaries have not been the large-scale Canadian Licensed Producers (LPs) like Canopy Growth or Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB). Craft and mid-tier Canadian LPs like Auxly Cannabis Group (TSX: XLY) (OTC: CBWTF) and Indiva Limited (TSX Venture: NDVA) (OTC: NDVAF) have been some of the biggest winners of the cannabis 2.0 market and we will monitor this trend in 2022 and beyond.
- The Canadian cannabis retail market is an emerging sub-sector of the cannabis industry and the number of open stores has substantially increased since 2019. A few months ago, High Tide Inc. (TSX Venture: HITI) (Nasdaq: HITI) opened its 100th cannabis retail store and we considered this to be a significant milestone for it. Through acquisitions, Sundial Growers Inc. (Nasdaq: SNDL) has become a leading Canadian cannabis retailer and is a business that are following. The increased number of retail stores has supported the growth of the Canadian cannabis market and we will monitor how the trend continues in the year ahead.
- 2021 has been a banner year for the Latin American cannabis industry and we are favorable on how this region has advanced. From the legalization of cannabis in additional Latin American countries to licensed operators exporting cannabis products to the EU, we are closely following several emerging trends in the region. Over the next year, we expect the Latin American cannabis market to record important advancements and are bullish on the economics associated with cultivating cannabis in certain countries. Some companies have reported to be growing cannabis for $0.06 per gram and we find this to be significant.
- Last week, Innovative Industrial Properties, Inc. (NYSE: IIPR) filed a Form 4 that covered stock sales from Executive Chairman Alan Gold. The stock that was sold was related to a Rule 10b5-1 trading plan that was filed in early September. When Gold filed the trading plan, the cannabis real estate investment trust (REIT) was trading near its all-time high. Gold sold 3,773 preferred shares in aggregate (still owns more than 30,000 preferred shares) through three transactions and we will keep an eye on the insider selling trend before year-end.
- During the back half of the year, we have seen a divergence between the Canadian and the US cannabis industry. The trend has been highlighted by broker-dealers raising price targets on leading US multi-state operators (MSOs) and lowering price targets on Canadian LPs. When compared to Canada, we believe that there is more interest in the US cannabis market. In 2022, we expect this trend to lean further toward the US and believe our readers need to be aware of this
- One of the most important themes in the cannabis industry is related to how Canadian LPs are cutting costs and closing facilities to preserve capital. When compared to Canada, the cost cutting and the facility closing trend is much different in the US. In 2022, we expect leading US MSOs to continue to expand into new markets and increase production capacity. When compared to Canadian LPs, US operators are having a much easier time accessing capital and we will continue to closely monitor this trend.
- A few years ago, there was a substantial increase in the number of companies that are focused on the cannabidiol (CBD) market. Fast forward to today and many of these companies are worth a fraction of what they were previously worth. We attribute part of the decline to the increasing demand for new cannabinoids like cannabinol (CBN), cannabigerol (CBG), and delta-8-Tetrahydrocannabinol (Delta-8). Several companies have evolved to be levered to the demand for new cannabinoids and we will monitor how the trend shifts in 2022.
If you are interested in learning more about the evolution of the cannabis industry, please send an email to firstname.lastname@example.org with the subject “Key Developments for the Cannabis Industry in 2022” to be added to our distribution list.
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