Many are gambling demand will skyrocket when pot is legal. Here’s why that’s not a safe bet!
In June, a company called MYM Nutraceuticals announced plans to build one of the world’s largest marijuana greenhouse operations. It’s a joint venture of sorts with the town of Weedon (naturally) in Quebec, where the municipality will buy the land and the company will have the right to purchase the acreage later. MYM anticipates the operation will consist of 15 greenhouses totalling 1.5 million-square-feet of production space. At full capacity, MYM says it can produce more than 150 metric tons of cannabis per year, worth about $750 million. In another release a few days later, the “Weedon Project” had apparently expanded to include a cannabis education centre, a cannabis museum, a 2,500-person auditorium and a 22-room hotel. The release also saw fit to mention that the president of MYM’s cannabis subsidiary is the nephew of “Canadian hockey super star” Guy Lafleur.
The project, to say the least, is ambitious—MYM Nutraceuticals is a penny stock that doesn’t even have a license from Health Canada to produce marijuana in Weedon—yet. But such bold pronouncements are not out of the place among publicly traded cannabis startups. Companies with little to no revenue can attain fat valuations as investors pile into the sector, based on the assumption that a multi-billion cannabis market will emerge after the federal government legalizes recreational consumption next year. But the size of that market and how much marijuana Canadians will really consume is still anyone’s guess. Companies and investors could end up burned if their optimistic projections never materialize.
These findings show less enthusiasm for marijuana than some other studies. Deloitte, for example, published a report last year that found 22 per cent of adult Canadians use marijuana at least some of them time. Based on that number, Deloitte estimates the base retail market value of recreational marijuana could be up to $8.7 billion. With ancillary services such as security thrown in, Deloitte projects a total market size of $22.6 billion. But in arriving at these estimates, Deloitte included another 17 per cent of respondents who said they “might” try marijuana if legalized, “suggesting the total potential marketplace…is close to 40% of the adult population.”
That could prove to be a big assumption. How many non-users will become tokers after legalization is still unknown. Even among existing users, the majority of marijuana is consumed by a minority of people. The Parliamentary Budget Office anticipates that Canadians who use cannabis at least once a week will account for 98 per cent of all marijuana consumption. Russell Stanley, an equity analyst at Echelon Wealth Partners who covers marijuana stocks, is not counting on a surge of new users. “I’m sure there will be people who might decide to try it,” he says, “but really the opportunity is that the illicit market will move to legal consumption.”
How much marijuana will be needed to satisfy that demand is another unknown. Canaccord Genuity estimates the combined recreational and medical markets could require 575 metric tons by 2021. Neil Closner, the CEO of marijuana producer MedReleaf Corp., has said demand could total 1,000 metric tons. The problem, he said in an interview on BNN this month, is that producers weren’t growing enough marijuana. “If you add up all of the announcements from all of the licensed producers to date in terms of their expected capacity growth over the next year, you’re only hitting at about half of their total demand,” Closner said. The host seemed amazed by Closner’s estimates. “A thousand tons,” he parroted. He didn’t press for specifics.
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THE CANADA PROJECT
How Canadians see our country at 150
In a follow-up with Maclean’s, the company referred to a report from CIBC that extrapolated from the size of Colorado’s recreational industry to project a $10-billion market in Canada. MedReleaf worked backward from there to arrive at 1,000 tons of supply. (To complicate matters, the CIBC report has been criticized by the Marijuana Policy Group, a Denver-based consulting firm, for overstating potential tax revenue from cannabis sales in Canada by 300 per cent.)
In June, a company called MYM Nutraceuticals announced plans to build one of the world’s largest marijuana greenhouse operations. It’s a joint venture of sorts with the town of Weedon (naturally) in Quebec, where the municipality will buy the land and the company will have the right to purchase the acreage later. MYM anticipates the operation will consist of 15 greenhouses totalling 1.5 million-square-feet of production space. At full capacity, MYM says it can produce more than 150 metric tons of cannabis per year, worth about $750 million. In another release a few days later, the “Weedon Project” had apparently expanded to include a cannabis education centre, a cannabis museum, a 2,500-person auditorium and a 22-room hotel. The release also saw fit to mention that the president of MYM’s cannabis subsidiary is the nephew of “Canadian hockey super star” Guy Lafleur.
The project, to say the least, is ambitious—MYM Nutraceuticals is a penny stock that doesn’t even have a license from Health Canada to produce marijuana in Weedon—yet. But such bold pronouncements are not out of the place among publicly traded cannabis startups. Companies with little to no revenue can attain fat valuations as investors pile into the sector, based on the assumption that a multi-billion cannabis market will emerge after the federal government legalizes recreational consumption next year. But the size of that market and how much marijuana Canadians will really consume is still anyone’s guess. Companies and investors could end up burned if their optimistic projections never materialize.
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These findings show less enthusiasm for marijuana than some other studies. Deloitte, for example, published a report last year that found 22 per cent of adult Canadians use marijuana at least some of them time. Based on that number, Deloitte estimates the base retail market value of recreational marijuana could be up to $8.7 billion. With ancillary services such as security thrown in, Deloitte projects a total market size of $22.6 billion. But in arriving at these estimates, Deloitte included another 17 per cent of respondents who said they “might” try marijuana if legalized, “suggesting the total potential marketplace…is close to 40% of the adult population.”
That could prove to be a big assumption. How many non-users will become tokers after legalization is still unknown. Even among existing users, the majority of marijuana is consumed by a minority of people. The Parliamentary Budget Office anticipates that Canadians who use cannabis at least once a week will account for 98 per cent of all marijuana consumption. Russell Stanley, an equity analyst at Echelon Wealth Partners who covers marijuana stocks, is not counting on a surge of new users. “I’m sure there will be people who might decide to try it,” he says, “but really the opportunity is that the illicit market will move to legal consumption.”
How much marijuana will be needed to satisfy that demand is another unknown. Canaccord Genuity estimates the combined recreational and medical markets could require 575 metric tons by 2021. Neil Closner, the CEO of marijuana producer MedReleaf Corp., has said demand could total 1,000 metric tons. The problem, he said in an interview on BNN this month, is that producers weren’t growing enough marijuana. “If you add up all of the announcements from all of the licensed producers to date in terms of their expected capacity growth over the next year, you’re only hitting at about half of their total demand,” Closner said. The host seemed amazed by Closner’s estimates. “A thousand tons,” he parroted. He didn’t press for specifics.
.cbR{box-sizing:border-box;display:block;width:100%;margin:1em 0;border:1px solid #bbb;padding:.5em}@media (min-width:480px){.cbR{width:250px;margin:0 0 1em 1em;float:right}}
THE CANADA PROJECT
How Canadians see our country at 150In a follow-up with Maclean’s, the company referred to a report from CIBC that extrapolated from the size of Colorado’s recreational industry to project a $10-billion market in Canada. MedReleaf worked backward from there to arrive at 1,000 tons of supply. (To complicate matters, the CIBC report has been criticized by the Marijuana Policy Group, a Denver-based consulting firm, for overstating potential tax revenue from cannabis sales in Canada by 300 per cent.)
and why you say?
