Recreational cannabis is coming to Canada. July 1, 2018 is the official date when Canada’s federal government will authorize the legal use of recreational cannabis. To date, many provinces are still in the planning stages as to how they will roll out the recreational use of cannabis in their own jurisdiction.
One Canadian province that is already well advanced in setting up a recreational cannabis market is Manitoba. This province has not only created its legislative framework, it is already awarding retail distribution licenses.
To date, Manitoba has handed out four such licenses. This is big news, in general. In specific terms, it is huge news for Delta 9 Cannabis Inc. (TSX: V.NINE, OTCQB: VRNDF, Forum), and its shareholders. On February 16, 2018; Delta 9, in partnership with industry leader Canopy Growth Corp (TSX: WEED), announced it has been awarded one of those licenses.
With respect to the current, medicinal market in Canada, most cannabis companies have gotten the biggest bump in their valuations from news on the cultivation front: acquiring an ACMPR cultivation license, or constructing/expanding cultivation facilities. Going forward, however, investors may find cannabis companies getting more traction on retail distribution news.
Why? It’s all in the numbers. At present, Canada’s medicinal market is estimated to be generating over $500 million per year in revenues. That’s a big number. However, the new recreational market is expected to quickly grow to roughly $10 billion per year in revenues. That’s an enormous number, and it’s an extrapolation from the existing recreational markets in two U.S. states: Colorado and Washington.
This means that a license for legal (recreational) cannabis distribution may now become a bigger driver in the valuations of cannabis companies than milestones on the cultivation end of operations. That’s the overview of the economic opportunity that NINE is seeking to exploit.
In specific terms, there are several important details upon which investors should focus. It starts with the Company’s partner in this Manitoba distribution initiative, Canopy Growth. Delta 9’s CEO, John Arbuthnot helps to put this news into context.
As the only Manitoba producer licensed to sell cannabis, and partnered with the world’s largest cannabis company, we feel we are uniquely situated to serve the Manitoba market with both quantity and quality of product.
Investors may be asking themselves why “the world’s largest cannabis company” has chosen to partner with Delta 9 in obtaining a Manitoba retail distribution license. The answer comes in the quote above: Delta 9 is the only licensed cannabis producer in the province that (now) has a recreational sales license to compliment its cultivation operations.
With regulations still murky with respect to the interprovincial flow of cannabis, there may ultimately be an enormous strategic advantage in having both in-province cultivation capacity combined with a license for retail recreational distribution. This would appear to be the thinking of Canopy Growth.
For Delta 9, the synergies are even more apparent. The Company will benefit from WEED’s overall depth of experience in the Canadian cannabis market. Partnering with such a well-capitalized company can only expedite Delta 9’s penetration of the Manitoba recreational market.
The license permits Delta 9 and its partner to construct and operate a chain of recreational cannabis distribution outlets. The Company has already constructed its first outlet in Winnipeg, a site that already operates as a resource centre/clinic.
Think “liquor stores”. When provincial governments began privatizing liquor distribution, the private sector was eagerly standing in line, looking to cash in on the robust margins and high sales potential in that industry.
There is no reason to believe that cannabis distribution will be any less lucrative. Indeed, NINE’s own internal research estimates the Manitoba recreational market to be a $300 million – $500 million per year opportunity.
Put this into context with Delta 9’s present market cap: $152 million (as of this writing). In contrast, Canopy Growth is a $5.4 billion behemoth. Clearly, it is the shareholders of NINE who can expect the greatest upside from this distribution news.
The Great Race in the Canadian cannabis market has entered a new phase as Canada’s medicinal market is about to be augmented by a much larger recreational market. As investors seek to position themselves for this imminent opportunity, Delta 9 is presenting the marketplace with a very attractive investment option.