'Cannabis 2.0' Products For Sale In Canada And The Effect On Investors

Written by David Jagielski | 08 Jan 2020
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📷 The Boston Globe

Edible and ingestible cannabis products became legal in Canada as of Oct. 17, 2019, and they hit the shelves of pot shops in December. Often referred to as "cannabis 2.0" products, they're a new segment of the industry that should provide Canadian cannabis companies with a big boost in sales as consumers gain access to a variety of new products.

However, investors expecting to see pot stocks soar might have to be a bit more patient, because it could be a while before companies get an uptick from the new product sales.

Retailers won't be selling edibles until mid-January

Ontario, Quebec, and Alberta likely won't have cannabis 2.0 products ready for sale until later this month. The delay is due to the bureaucracy involved, including the time it takes retailers to follow the steps needed to obtain the products. In many cases, customers who are eager to purchase cannabis products can order them online rather than going to a store.

However, retail pot shops are crucial to the industry's success. The lack of a strong retail rollout in year one of cannabis legalisation was a big reason the industry didn't perform as well as it could have in Canada. Any delay in getting products on store shelves will delay companies seeing those sales numbers on their financials as well. Retailers play a significant role in the industry's success, and in Ontario, the country's largest province, cannabis sales were "generally muted" until pot shops were up and running last April, according to a Cowen analyst.

Rolling out products slowly

Another reason investors will see a delay in financial results will come from cannabis companies themselves. Many are taking a more cautious approach this time around and aren't rushing to get their products out as quickly as possible. In a sign of the industry's growth over the past year, companies now know the importance of playing it safe, especially amid some serious health concerns surrounding vapes.

It could take months before companies release all of their products. OrganiGram Holdings, which expects to be a major player in chocolate cannabis products, isn't expecting its merchandise to fully come online until the second quarter of this year. Its infused chocolate will be available during the first quarter of the year, but other items won't be ready until sometime in Q2.

The slow-and-steady approach is a recurring theme that many cannabis producers are focusing on to ensure that they do things right from the get-go.

What does this mean for investors?

OrganiGram is likely to report its first-quarter earnings of 2020 toward the end of January, although the company has not made an official announcement just yet. Those results will be for the period ending Nov. 30, 2019. Investors likely won't see the impact of any edible and ingestible sales until at least the next quarter, which will be for the period ending Feb. 29, 2020. The company didn't release its Q2 results last year until April.

And it won't be until July of this year -- when the company will likely report results for its third quarter, ending May 31 -- that investors will see a full quarter of edible and ingestible sales addressed. However, even those figures might not include the company's full slate of products.

In November, OrganiGram released its year-end results for fiscal 2019, and it reported net revenue totalling 80.4 million Canadian dollars. While that's a significant increase from the CA$12.4 million that it reported in the previous fiscal year, the company is banking on edible products making fiscal 2020 another strong year.

Other cannabis companies will likely get a boost from the new product sales as well, but investors could be waiting potentially half a year or more before seeing just how strong those numbers are. In the meantime, marijuana companies are going to be incurring more expenses along the way without seeing the benefit of those efforts later down the road. It could be a challenging year for cannabis investors, one that requires even more patience.

Source: The Motley Fool