The Single Biggest Threat to the Canadian Cannabis Oligarchy

Discussion in 'Canadian Patients' started by gb123, Dec 7, 2017.


    gb123 Well-Known Member

    As with many industries in Canada that are run in a government-owned and -operated fashion, having a distribution/retail government monopoly on cannabis in key markets such as Ontario and Alberta perhaps came as little surprise to many cannabis investors.

    With only a handful of Canadian provinces and territories laying out their plans for how cannabis will be taxed, regulated, procured, and distributed to recreational users, differences across provinces as to how the psychedelic product will end up in the hands of first-time users and hardcore aficionados remains to be seen. That said, like the heavily regulated liquor distribution and retail model found in provinces like B.C., Ontario, and Quebec, Canadians should expect to pay exorbitant amounts for their marijuana moving forward as a direct result of said monopolies.

    Canadians are used to the story — taxation by other means; whether we’re talking about a bottle of booze, a cell phone plan, or filling up the gas tank, Canadians pay some of the highest prices in the world for goods that are much more affordably priced in countries actively focused on allowing free enterprise and competition to do their role in allowing consumers to pay market prices for goods.

    Besides the retail cost argument, an argument that has not yet reared its ugly head but inevitably will (specifically in monopoly-first provinces), a key consideration for cannabis investors should be how these new systems of distribution and retail will affect their ultimate selling price. Up until now, through a network of producer-owned dispensaries and a mail-order system that appears to work just fine, marijuana producers have continued to churn out sky-high operating margins.

    Losing a significant degree of control over the supply chain should be the biggest risk factor investors price in to producers today; the ultimate price Cant pea worth a shit corp) is likely to achieve for its product can only go down after legalization — a fact that will hit Canopy’s bottom line as well as its competitors across the board.

    But costs are low and margins are high?

    Production costs are currently very low, and margins remain high for producers across the board, making the cannabis production industry a very lucrative one long term. Sprinkle in a sky-high growth rate related to a larger available market, and it’s easy to see how the recipe for investor enthusiasm bordering on hysteria can manifest itself.

    That said, companies differ in their calculations used to determine what a cash cost per gram is or how to value their inventory on their balance sheet. Accounting methods used in this industry, like in other commodities-based businesses, is difficult to understand. With the industry still in its infancy, and a lack of a concrete consensus on how costs and inventory is accounted for, plenty of room for exaggeration (and, dare I say it, manipulation) remains.

    With . (TSX:AP) posting the current record for lowest cash production costs per gram among its large peers (at $0.95, no less), companies like Me. (TSX:AF) and Canopy will undoubtedly be focusing on the cost portion of the equation, given their stated cash production costs of $1.46 and $2.78, respectively, and given the uncertainty relating to the revenue side of the equation right now.

    What about the long-term margin expansion expected via legalization of secondary and tertiary products?

    While margins across the board may take a hit in the near term due to the introduction of government distribution networks, the argument that margins should rebound to current levels over the long term due to the ability of cannabis producers to introduce new beverages, oils, and other products carrying higher margins is an argument I find leaves lots of room for the imagination, given the stance the current federal government has taken on the secondary market.

    As in other industries, in which the hand of the government is firmly placed inside the pocket of producers, investors should expect to see a slow and steady increase in taxation rates by various means impacting producers over the long term, reducing the net impact any secondary or tertiary products would have on margins.

    As a cautious long-term investor, I would advise all investors to analyze cannabis producers based on fundamentals. In doing so, it becomes clear that current valuations do not make any sense.

    CalyxCrusher Well-Known Member

    Ive said it from the first fucken day Tweed was valued at $100 million on the stock market without ever having sold a gram that the valuations were made up bullshit. Especially given the low quality they're turning out.

    TheRealDman Well-Known Member

    And now ShiTweed is valued at over $3B and have still never turned a profit.

    HotWaterKarl Well-Known Member

    The single, biggest threat?

    .....the informed consumer :)
    kDude, Farmer.J, gb123 and 5 others like this.

    gb123 Well-Known Member

    and it STILL IS the same friggin way! Their valuation is a PIPE DREAM.... the equation they used flew out the window with harpshit!
    CalyxCrusher likes this.

    gb123 Well-Known Member

    Andrew Potter is an associate professor at the McGill Institute for the Study of Canada.

    Is Canada a real country? Reading over the submissions in R. v. Comeau this week, you might well wonder. That's because one by one, the provinces, territories and even the federal government lined up on Wednesday to argue that Gerard Comeau was in the wrong, in 2012, when he took a quick trip across the border into Quebec from his home in Tracadie, N.B., to pick up some cheaper beer.

    Opinion: How 354 bottles of beer could crack open Canada's internal trade barriers

    Caught in a sting and handed a nearly $300 ticket for smuggling contraband, Mr. Comeau demanded his day in court. He argued that the prohibition against transporting booze across provincial lines violated Section 121 of Canada's Constitution Act, 1867, which on any plain reading promises free trade of goods between the provinces. And, miracle of miracles, he won. And having won in Provincial Court, and with the Court Of Appeal punting it upstairs, he's been dragged to the Supreme Court of Canada to argue his case.

    And his case, in a nutshell, is pretty compelling. As he put it in the legalese of the common man after his victory in 2016:

    "The way I look at it, I'm a Canadian citizen. I don't see any reason why I can't go buy merchandise anywhere in this country and bring it home. You can buy anything else like cars, clothes, everything. Except for beer."

    QED, Your Honour.

    Except this is Canada, where there is no such thing as a plain reading of the Constitution, especially when alcohol (it's really amazing how much of our Constitution comes down to booze), producer cartels and provincial interests align. Everyone is hanging their hopes on the Supreme Court upholding the Prohibition-era Gold Seal ruling from 1921, which defended an excessively narrow ruling of Section 121 of the Constitution. And so as you might expect, everyone is lined up against Mr. Comeau, but – in the surest sign that what's going on is rank special pleading – everyone has a different reason for why he's wrong.

    It's about the money, says New Brunswick, which has the virtue of honesty. No, it's to prevent the dreaded "market forces" from driving everyone into an uncontrollable "race to the bottom," British Columbia says. Ontario, where some days it is evident the state's instincts regarding vice haven't evolved much since Prohibition, just thinks there's no real reason to revisit the past. Federal officials are being all wishy-washy, imploring the court to take a "nuanced" approach. Nunavut argues that is about public health, and at least they have something of an argument. But for whatever reason, everyone agrees that Mr. Comeau's acquittal cannot stand – everyone, that is, except the people.

    Because despite what their respective provincial, territorial and federal governments think, Canadians think they should be able to buy any legal product anywhere in the country, and take it wherever they please. According to a recent poll by Ipsos Public Affairs and commissioned by the Montreal Economic Institute, 89 per cent of Canadians think Mr. Comeau is right, that Canadians should be able to bring any legal product from one province to another. That's almost nine in 10 Canadians, which pretty much has to amount to every Canadian who doesn't have a personal stake in maintaining the status quo.

    Crown attorneys across the country might believe the case threatens the foundation of Canadian federalism. If the citadels of booze fall, if the beer goes free, anything could happen. People might demand the same of milk, eggs, chicken and cheese. It could threaten the tax dollars from legalized pot currently dancing in the eyes of provincial treasurers. No, absolutely not: Under no circumstances can Canada be permitted to function like a real country.

    A few years ago, a character named Joe captured the country's imagination when he stood up on a stage and went on a rant spelling out just what being Canadian meant to him. I don't live in an igloo, he said. I don't say "aboot," I speak English and French, I believe in peacekeeping not policing, diversity not assimilation, and it's zed, not zee. My name is Joe, he yelled, and I am Canadian.

    It was a beer ad, for Molson Canadian, and pretty popular one at that. But for all the cringe-inducing stereotypes, the crude anti-Americanism and the ROC-centrism (it's hard to find Molson Canadian in Quebec), what got ignored was the deep irony of it all. Because if there's one thing that doesn't pull Canadians together, one thing that underscores how deeply, pettily and corrosively provincial we all are, it's beer.

    Gerard Comeau begs to differ. He's a Canadian hero. If he wins, we should put him on our money.

    WHATFG Well-Known Member

    How 354 bottles of beer could crack open Canada's internal trade barriers.

    I can't stop laughing about this article or this headline...we love our beer eh? guy is going to win...kudos to him for sticking to his the ipsos poll....

    Logically, this is probably happening on a regular basis, people just haven't been will be another "the sky is going to fall if we allow this" bullshit.....fucking greed.
    cannadan and gb123 like this.

    gb123 Well-Known Member

    we'll know in the next few will make or break a lot of things.
    cannadan likes this.

    cannadan Well-Known Member

    it should be a no brainer....for the courts

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