Why Production Costs will Lead To 'Carnage' In Canadian Market

In late November, Aurora Cannabis Inc (NYSE: ACB) (TSE: ACB) CEO Terry Booth told BNN Bloomberg that his company has its sights set on the United States market.

"Carnage" could be ahead for the Candian market in the year to come, the CEO said.

Some top licensed producers continue to grow grams at costs between CA$4 and CA$5 ($3.03-3.79), while others, including Aurora, operate at under CA$1.

The CEO did not respond to Benzinga's request for additional comment.

Raymond James Eyes Thin Cannabis Margins

While Booth did not single out any players in the space, an October Raymond James report highlighted two of the country's leading five LPs, Canopy Growth Corp (NYSE: CGC) (TSE: WEED) and Tilray Inc (NASDAQ: TLRY).

The two companies produce at roughly CA$4 per gram, said analyst Rahul Sarugaser.

Those costs coupled with a CA$1 per gram excise tax and an average provincial sell rate of CA$6 per gram result in thin gross margins of around CA$0.20 to CA$1, the analyst said.

"As prices come down, we see this small margin getting further compressed."

The report highlighted Aurora, and well as Aphria Inc (NYSE: APHA) (TSE: APHA), for each generating roughly CA$0.50-cent margins with production costs between CA$1 and CA$2 per gram.

OrganiGram Holdings Inc (NASDAQ: OGI) (TSE: OGI) operates at the lowest cost, at roughly CA$1 per gram, Sarugaser said.

OrganiGram did not respond to a request for comment from Benzinga for this story.

GrowEx Founder Expects Consolidation

Others in the space share similar concerns as Aurora's CEO.

Chris Treville, the founder of the Canadian indoor grow tech company GrowEx, said the model by which many companies have been built is the cause.

"The capital expense model on which most of the current producers are built — which in some cases [they're] probably still paying off — [is] not operationally capable of reducing costs directly related to cultivation."

Treville expects consolidation in various forms to take place as a result.

Reduced export license applications, U.S. investors entering the market and a push for converting biomass to concentrates are areas of concern, the exec said.

Yep....

That's why Aurora spent the billions up front. To be the lowest cost producer. Because they knew EXACTLY what would happen, which is that the flood of so many LPs would flood the market with weed and drive the price down. It's called "first mover advantage." Now they wait for low prices to bankrupt the little guys who have no profit margin. It's happening already.

Canopy has a billion $s in the bank. Watch them buy up the LPs who go broke this year. That's called "market consolidation," where the big guys eat up the market share of failed LPs.

The one thing they all were surprised by is the slow roll out of stores in ONT and QC, which hurt profits, but that hurt the little guys far more than the big guys, who planned for the price drop. In fact, it's a blessing to the big guys because it'll speed consolidation up and get them profitable faster.

Now that the share prices are down on those big guys it's time to buy 'em. Triple your money in a year.

Gquebed said:

Now that the share prices are down on those big guys it's time to buy 'em. Triple your money in a year.

Click to expand...

Are you smoking LP weed or what?!
Canopy (who already blew thru Constellation’s $2.7B in the last 2 years of its $5B initial investment, and only has $1.3B left), said they won’t turn their 1st penny in profit until FY2022, at the earliest! There’s not a single publicly traded LP who is gonna triple you money for decades. If you didn’t invest in 2013/14...you already missed the boat.

LOL @TheRealDman

Gquebed said:

Yep....

That's why Aurora spent the billions up front. To be the lowest cost producer. Because they knew EXACTLY what would happen, which is that the flood of so many LPs would flood the market with weed and drive the price down. It's called "first mover advantage." Now they wait for low prices to bankrupt the little guys who have no profit margin. It's happening already.

Canopy has a billion $s in the bank. Watch them buy up the LPs who go broke this year. That's called "market consolidation," where the big guys eat up the market share of failed LPs.

The one thing they all were surprised by is the slow roll out of stores in ONT and QC, which hurt profits, but that hurt the little guys far more than the big guys, who planned for the price drop. In fact, it's a blessing to the big guys because it'll speed consolidation up and get them profitable faster.

Now that the share prices are down on those big guys it's time to buy 'em. Triple your money in a year.

Click to expand...

The little guys are going to be the most profitable for the next 10 years!!

Cant Pee is Burning their funds.................... faster than you can say ..........................BYE BYE...
No Profit for these fools.
Aurora was TOLD by the one person who showed them how to grow that they would lose their shirts if they did this !

TheRealDman said:

Are you smoking LP weed or what?!
Canopy (who already blew thru Constellation’s $2.7B in the last 2 years of its $5B initial investment, and only has $1.3B left), said they won’t turn their 1st penny in profit until FY2022, at the earliest! There’s not a single publicly traded LP who is gonna triple you money for decades. If you didn’t invest in 2013/14...you already missed the boat.

Click to expand...

Yes. None of the bigs expected to turn a profit for the first 5 years. That's just not possible when you invest billions in a new market, with heavy competition. High financiers know that. But they play a different game. They're looking to monopilize the market. Lucky for them it'll happen faster than they thought. This is taught in first year business school.

I've been investing for 30 years. I've seen this over and over again. It's business 101. So far EVERYTHING that I have predicted since 2016 has happened, which can be verified by checking my posts in this forum and in others on this site.

I'm telling you, buy shares in ACB, WEED, APHA or CRON. They will triple by Xmas next year and by then there will likely be only 6 or so viable players left.

gb123 said:

LOL @TheRealDman







The little guys are going to be the most profitable for the next 10 years!!


Aurora was TOLD by the one person who showed them how to grow that they would lose their shirts if they did this !

Click to expand...

Some "craft" growers may survive, if they produce something significantly better than the big guys. But I don't see how that's possible if the have to irradiate too and if they spray. It'll be the same shit as the bigs.

And who "told" ACB how to grow? I happen to know the master grower at the Edmonton facility. He used to own a hydro shop here.

These companies were bleeding money from their first year in existence when they were medical only, weathering the storm until legalization. We all saw it for what it was, a long con. Nothing more than a way to get a foothold to establish themselves as manor players when legalization rolled out.

When legalization came and they continued to bleed out(Canopy has tripled its losses in as many years) they clamored around the idea that it would be edibles that would save the market.

So when next quarter rolls around and we see that yes, there was a small bump during the initial launch of edibles much like in October, they're still going to be showing as hemorrhaging money because they offer a bad product for a bad price that nobody wants.

Just ask the hundreds of thousands of kilos of years old, unsold, unwanted garbage they keep in storage....

Fact of the matter is they approached this like they do any other market and spread themselves wayyyy thin, spending wayyyy too much in trying (once again) to corner the market by buying other companies or opening other locations. All while pissing away peoples money. This has been going on for what will soon be closer to 10 years since inception and yet no profit. No good product. And most of the big players are down more than 70% in the markets.

You can view things how you wish but facts are facts. And these facts are fucking hilarious. Everyone who wasn't blinded by greed saw it coming miles away.

Gquebed said:

Yep....

That's why Aurora spent the billions up front. To be the lowest cost producer. Because they knew EXACTLY what would happen, which is that the flood of so many LPs would flood the market with weed and drive the price down. It's called "first mover advantage." Now they wait for low prices to bankrupt the little guys who have no profit margin. It's happening already.

Canopy has a billion $s in the bank. Watch them buy up the LPs who go broke this year. That's called "market consolidation," where the big guys eat up the market share of failed LPs.

The one thing they all were surprised by is the slow roll out of stores in ONT and QC, which hurt profits, but that hurt the little guys far more than the big guys, who planned for the price drop. In fact, it's a blessing to the big guys because it'll speed consolidation up and get them profitable faster.

Now that the share prices are down on those big guys it's time to buy 'em. Triple your money in a year.

Click to expand...

Only people making money on the Canadian cannabis industry next year are those shorting the LPs or holding HMJI. The black market is winning, will continue to win until the laws get scraped and done properly (never happening).

Gquebed said:

Some "craft" growers may survive, if they produce something significantly better than the big guys. But I don't see how that's possible if the have to irradiate too and if they spray. It'll be the same shit as the bigs.

And who "told" ACB how to grow? I happen to know the master grower at the Edmonton facility. He used to own a hydro shop here.

Click to expand...

ROTFLMFAO.......
FIRSTLY ........ THEY DO NOT HAVE TO DO IT LIKE LP"S
and IS what will see PROFITS.....
YOUR MASTER GROWER .......WAS NOT AT THIS MEETING..OR HE WOULD HAVE LEFT AFTER THE FIRST 3 MINUTES INTO IT!
and if your buddy is the master grower???!!! Tell him to look for another job because his is TOAST with what he
s TRYING to GROW!
They are a waste or space. Time. money and well .................anything Cannabis related!
What they were told from day one is what is happening to them NOW.. any other spin on how they plan on profiting. is right out to lunch!
They dont have a clue as with every other LP....................... scratching and crawling along ..

You guys forget... the big guys aren't just supplying Canada. They have international contracts. Canada's 30 million peeps are small potatoes compared to Germany's 80 mil+. Then there is Spain, Australia, UK, France and all of South America so on.

I get why y'all are sour on these guys, because they're stepping in on your business. But they aren't going away. Even if ACB and Canopy run out of money, they'll be bought and run under different names. Probably by the pharmaceutical guys.

We're sour cause 1) they tried to hold us hostage and jail us, 2) their weed is almost 100% to the company, CRAP.

Weed isn't like Walmart, everybody wants the fucking cronic if they can afford it, they don't want Walmart and they will pay more for good weed from the black market if the only choice is SUB-PAR LP weed!!! Right now they pay less from the black market, but they would pay more. Clearly you do not understand the weed market at all.

Gquebed said:

You guys forget... the big guys aren't just supplying Canada. They have international contracts. Canada's 30 million peeps are small potatoes compared to Germany's 80 mil+. Then there is Spain, Australia, UK, France and all of South America so on.

I get why y'all are sour on these guys, because they're stepping in on your business. But they aren't going away. Even if ACB and Canopy run out of money, they'll be bought and run under different names. Probably by the pharmaceutical guys.

Click to expand...

Because that's going well.. turns out you can just grow weed anywhere and that market isn't ever materializing either..

I'm sour on them because I'm disappointed this garbage is what we got as legilization. If you don't want to hear about how poor owning Canadian Cana stocks is going to make you stop posting bullshit the LPs feed to suckers and I'll stop correcting you.

Sour?

Far from it.
We have called this fiasco since day one and have been correct all the way along.. ........see ..


BYe Bye Canadian LP shwags yer day has come and gone... lol

Gquebed said:

You guys forget... the big guys aren't just supplying Canada. They have international contracts. Canada's 30 million peeps are small potatoes compared to Germany's 80 mil+. Then there is Spain, Australia, UK, France and all of South America so on.

I get why y'all are sour on these guys, because they're stepping in on your business. But they aren't going away. Even if ACB and Canopy run out of money, they'll be bought and run under different names. Probably by the pharmaceutical guys.

Click to expand...

And they'll fail in those markets. You seem to forget the proliferation of cannabis available in those countries through the BM. Selling a shit product, domestically or internationally doesn't change what it is, garbage. You act like LPs ACTUALLY offer a competitive product. That's ok, when they lose money around the world you can say I told you so.

Why do you think they haven't tried to expand to legal states in the US?(Rhetorical) Because they couldn't compete against the market from 15 years ago let alone today. Hey speaking of legal states, why is it that irradiation isn't a thing there? Hmmmmmmm weird......

Also, no business to step on. They DID however step on patients rights. And continue to fuck patients over.

johnnyboyee said:

Clearly you do not understand the weed market at all.

Click to expand...

Yep, exactly what I mean when I say they approached it like any other market when it clearly isn't.

CalyxCrusher said:

And they'll fail in those markets. You seem to forget the proliferation of cannabis available in those countries through the BM. Selling a shit product, domestically or internationally doesn't change what it is, garbage. You act like LPs ACTUALLY offer a competitive product. That's ok, when they lose money around the world you can say I told you so.

Why do you think they haven't tried to expand to legal states in the US?(Rhetorical) Because they couldn't compete against the market from 15 years ago let alone today. Hey speaking of legal states, why is it that irradiation isn't a thing there? Hmmmmmmm weird......

Also, no business to step on. They DID however step on patients rights. And continue to fuck patients over.

Click to expand...

It's OK..
that's what happens to folks who have lost their shirts....
they fight the ones who Got them there in the first place! and who told them how investing in it will see them lose.. \
In and out for the originals..................... and Its over...
How quickly they forget eh

gb123 said:

It's OK..
that's what happens to folks who have lost their shirts....
they fight the ones who Got them there in the first place! and who told them how investing in it will see them lose.. \
In and out for the originals..................... and Its over...
How quickly they forget eh

Click to expand...

I remember when I first started buying stocks. Loser stocks I would pump because I believed in them despite all of the signals. I was in love with my own thoughts of making money on LOSER stocks and sectors THAT HAD YET TO TURN A PROFIT IN THE FORESEEABLE FUTURE.

Never love a stock or sector. That is what I learned the hard way. Look at fundamentals. Don't be a believer...

After a while I think about it, you know, does the sector have a superior product? NO. Does the sector have TRUSTED distribution sources? NO.

Bullish!!!!

LOL

Gquebed said:

Yep....

That's why Aurora spent the billions up front. To be the lowest cost producer. Because they knew EXACTLY what would happen, which is that the flood of so many LPs would flood the market with weed and drive the price down. It's called "first mover advantage." Now they wait for low prices to bankrupt the little guys who have no profit margin. It's happening already.

Canopy has a billion $s in the bank. Watch them buy up the LPs who go broke this year. That's called "market consolidation," where the big guys eat up the market share of failed LPs.

The one thing they all were surprised by is the slow roll out of stores in ONT and QC, which hurt profits, but that hurt the little guys far more than the big guys, who planned for the price drop. In fact, it's a blessing to the big guys because it'll speed consolidation up and get them profitable faster.

Now that the share prices are down on those big guys it's time to buy 'em. Triple your money in a year.

Click to expand...

The elephant in the room for most of the LP's currently,is that their product is bad.Not a little bit bad but really really bad.The only way they will ever turn a profit is if they burn current inventories ,get good growers, better genetics and start over again.Behind closed doors the lobbying has already started for increased penalties for Cannabis Act offenses.If you cant produce a product the public wants,you can lobby to make sure their are no alternatives.That is the mindset most have and thus the product will not be improving anytime soon.Thats my $0.02.

Its funny because canada used to be seen as a major producer for MJ in northern US. Now it seems like the tables will turn if their govt. gets greedy

I mean the US is a little more temperate anyways right?

but then again as an indoor grower I love the cold weather and lack of bugs and heat excess

alexcarter said:

The elephant in the room for most of the LP's currently,is that their product is bad.Not a little bit bad but really really bad.The only way they will ever turn a profit is if they burn current inventories ,get good growers, better genetics and start over again.Behind closed doors the lobbying has already started for increased penalties for Cannabis Act offenses.If you cant produce a product the public wants,you can lobby to make sure their are no alternatives.That is the mindset most have and thus the product will not be improving anytime soon.Thats my $0.02.

Click to expand...

Not sure the genetics are bad or the growers. Its just growing on that scale just wont produce good product. The irradiation is a huge problem too.
But... that wont matter in a generation or two. Just the same as people accept shit food and booze produced en masse they will accept shit weed to eventually, because the younger generation just wont know any better.

I used to brew better beer in my basement than could be bought at the store, but because it didnt have a brand label on it some friends thiught it was shit. But they only ever drank Molson canadian or labatts blue. Lol