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Cover growth (NYSE: CGC) has a lot of competition. You should put Aurora Cannabis (NYSE: ACB) high on the list, especially after the company captured 20% of the Canadian market for recreational marijuana in the last quarter.
Cronos Group (NASDAQ: CRON) is another key rival for Canopy Growth. When the big investment of the giant tobacco Altria is over, Cronos will have a lot more money to use to compete with Canopy. There is also Tilray (NASDAQ: TLRY). For a while, Tilray and Canopy Growth have been at arm's length in the battle for the largest market capitalization of marijuana stocks.
But none of these other Canadian marijuana growers ranks first among Canopy Growth's rivals. Who is the most serious challenger of the company? A recent report from Statistics Canada gave the answer.
Source of the image: Getty Images.
The biggest competitor
Statistics Canada is the number one Canadian government. As the cannabis industry becomes increasingly important to the Canadian economy, the agency provides quarterly updates on cannabis production and sales.
The latest Statistics Canada report found that cannabis spending totaled Can $ 2.2 billion (about US $ 1.6 billion) in the fourth quarter. This represents 0.4% of Canada's gross domestic product in the fourth quarter.
Canopy Growth announced a few weeks ago that it was earning $ 83 million (about $ 62 million) during the quarter ending December 31st. The company announced that $ 57.7 million (approximately $ 43.4 million) was derived from the marijuana market for recreational purposes. Aurora Cannabis announced that it has made $ 21.6 million (US $ 16 million) in sales of recreational pots for the same quarter, for a total of $ 54.2 million in sales. Canadian (40.7 million US dollars).
Neither Cronos Group nor Tilray have published results for the last quarter. But in terms of production capacity, Canopy and Aurora far exceed other Canadian marijuana growers. Cronos and Tilray are virtually certain to report lower recreational marijuana sales than either Aurora or Canopy Growth.
Who is the mysterious rival with a much larger market share than Canopy Growth? The black market According to Statistics Canada, illegal cannabis sales in the fourth quarter totaled C $ 1.4 billion (about US $ 1 billion), compared to C $ 770 million (US $ 573 million) in sales. legal cannabis.
Reduce the gap
Significant levels of illegal marijuana sales were expected. The Bank of Nova Scotia estimates that 71% of total marijuana sales in Canada in 2019 will be on the black market. Statistics Canada's fourth quarter figures were consistent with this projection.
However, look for Canopy Growth and its peers to significantly reduce the gap in the future. According to the Bank of Nova Scotia, the black market will generate only 37% of total marijuana sales by 2020.
Canopy, Aurora, Cronos, Tilray and other licensed marijuana growers will in the future withdraw their black market sales. On the one hand, there was a timing problem in play in Q4. The Canadian adult leisure pot market only opened on October 17, almost three weeks after the fourth quarter.
A more important factor, however, is that the production capacity of the major marijuana growers will increase in 2019 and 2020. The most important reason why black market marijuana sales were lower than legal marijuana sales in the fourth quarter quarter was the lack of available to meet the demand.
Another way for Canopy Growth and its peers to take market share from illegal vendors is to strengthen their retail operations in the Canadian provinces. This process will extend beyond 2019, but you can probably expect a growing increase in recreational pot sales in retail outlets this year.
A persistent rival
Do not think that the biggest "rival" of Canopy Growth will give up its market share without fighting. The legal Colorado pot market opened in 2014. Since then, the black market has exploded.
Illegal marijuana sellers have some important advantages over companies like Canopy, Aurora, Cronos and Tilray. First, they do not pay any taxes. Second, they do not have to comply with regulatory requirements such as packaging standards and quality control. As a result, black market marijuana prices may be well below legal prices.
The problem for investors is that valuations of major marijuana stocks are based on expectations of phenomenal growth. These growth levels will not be achieved if pot sales on the black market are too high.
Perhaps one day Aurora Cannabis, the Cronos or Tilray group will become the main rival of Canopy Growth. If that happens, it will probably be good news for all marijuana stocks.
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