Canaccord Genuity held its fourth annual cannabis conference this week, but like other events, this one went virtual. The company reported that it had close to 800 participants and 250 institutional investors. Canaccord also released a report on May 13 recapping the top themes and highlighting several companies.
Canaccord highlighted some of the key themes that were discussed at the conference. Luckily, Covid-19 has not been as bad for cannabis as it has been for other industries. Supply chains appear to be uninterrupted due to cannabis being named an essential service. Social distancing measure and stay-at-home directives did cause many operators to experience a spike in demand in March as consumers stocked up.
Many companies actually found a silver lining in the virus cloud as many were forced to focus on various parts of their operations in order to identify areas that could be improved for efficiency. Cost control efforts could be blamed on Covid and companies would not receive any negative blowback. Still, Covid has forced attention on company balance sheets and a hard look at cash burn rates and investment choices.
2019 was all about expansion and planting flags in as many states as possible, but 2020 is all about execution and delivering on message. More attention is being paid to realistic pathways to profitability and capital allocation. 2019 was notable for the race to have the most licenses, while 2020 has shifted to being a leader in a smaller number of markets. For example, while many companies were racing to get into California because of the size of the market, Cresco Labs (CRLBF) and GTI looked like winners for going after Illinois instead. Illinois has turned out to be a huge state for sales, with fewer of the headaches of the California market and less competition.
Canaccord believes the cannabis industry has the potential to reach upwards of $100 billion in annual revenues over the next decade. The analysts also believe that in 2020, despite most of the markets only being medical, revenues could hit $18 billion.
Canaccord rarely says anything negative about the cannabis companies as it acts as a banker for many of them. Instead, words like challenges and headwinds feature into narrative. Companies that are known to be struggling continue to receive speculative buy ratings. Having said that, here are some of the key highlights from Canaccord's industry note dated May 13.
AYR Strategies (AYRSF)
"Given the company's cash position and positive cash flows forecasted for this year despite headwinds, we continue to believe AYR is one of the best positioned companies in the space to weather prolonged market headwinds. Additionally, as other operators in the space face capital challenges, we believe AYR will be positioned to complete strategic acquisitions at attractive multiples."
Charlotte's Web Holdings (CWBHF)
On May 14, Charlotte's Web Holdings, Inc. reported slipping first-quarter revenue for the quarter ending March 31, 2020. The company delivered revenue of $21.5 million, slightly below last year's revenue of $21.7 million for the same time period in 2019. However, this beat the Yahoo! Finance average analyst estimate of $20.78 million. Canaccord wrote, "The company continues to be the market leader, with over 35% market share following the announcement of the acquisition of Abacus. Innovation remains a key pillar of growth for Charlotte s Web, with the company having introduced new product form factors, an extended line-up of topical products, and increased canine products over recent months. we believe Charlotte s Web is well positioned to continue its market dominance, given its leading brand awareness, vertically integrated infrastructure, and healthy balance sheet, as the market for CBD products continues to grow."
Cresco Labs (CRLBF)
"The company recently completed construction and expansion at two of its Illinois cultivation facilities, leaving the company well positioned to capture market share and remain a leader within the high growth, but currently undersupplied Illinois market. Meanwhile, Pennsylvania remains one of the most attractive medical markets in the US, with Cresco recently doubling its cultivation capacity within the state, which should allow the company to maintain its 25%+ market share within Pennsylvania. Furthermore, recent sale-leaseback activity, coupled with the addition of a $100M term loan, positions Cresco with one of the industry s best balance sheets. This, in our view, will help support growth initiatives throughout 2020, and cement the company s status as a market leader."
Green Thumb Industries (GTBIF)
"In 2019, the company reported annual revenues of >US$216M. GTI will be reporting its FQ1/20 financial results after market on Thursday, May 14, 2020, which will, for the first time, include an entire quarter s contribution from the recently legalized Illinois adult-use market. In the first quarter of 2020, Illinois saw ~US$110M in total adult-use sales where we believe GTI is competing with CL for the top spot in this newly opened market."
MediPharm Labs (MEDIF)
"MediPharm has plans to launch additional CBD formulations in the near term, along with some THC blends and topical formulations thereafter, while Ace Valley-branded products are set to be launched by month end. The company continues to explore novel cannabinoids such as CBN as a sleep aid and THCV as an appetite suppressant; however, a significant hurdle to commercialization is determining and procuring the best genetics to maximize cannabinoid yields.
OrganiGram Holdings (OGI)
"OGI recently began selling its value-focused brand, Trailer Park Boys, which Mr. Engel s stated as being very well-received since its launch. He went on to further detail the company s strategy around the cannabis 2.0 market, citing that the company prioritized completing construction of it vape and chocolates infrastructure, and, as a result, these segments contributed 15% of revenues in its most recent quarter."