Article by Jeff Lagerquist,
If you’re thinking of gifting cannabis this holiday season, it may pay to shop last minute, according to analysts at BMO Capital Markets calling for discounts near the end of the year.
Tamy Chen and Peter Sklar are forecasting price cuts on middle-tier flower as provinces attempt to clear out vaults ahead of new products like edibles, vapes and beverages, which are expected to launch in mid-December.
“Given the elevated inventory level currently held by provinces, which we have anecdotally heard is largely the ‘mid-range’ flower category, we believe provinces and retailers will likely implement price markdowns to accelerate product sell-through,” they wrote in a research note on Monday.
Higher prices compared to illegal sources have been a major criticism of Canada’s legal market for recreational cannabis. Statistics Canada figures show illegal prices fell to $5.93 per gram in the second quarter from $6.23 in the first quarter. Meanwhile, legal prices climbed from $10.21 per gram to $10.65. The national average price is currently $6.94, according to the federal agency’s crowdsourced data.
The good news for holiday cannabis shoppers could amount to a lump of coal for large licenced producers as they report financial results into 2020.
“We believe provinces and retailers would eventually renegotiate the wholesale prices paid to licenced producers,” Chen and Sklar wrote. “We are forecasting that prices received by licenced producers for recreational dried flower begin to decline in Q1 of 2020.”
They expect calendar third-quarter 2019 sales to provinces will decline 20 per cent quarter-over-quarter, with modest growth in Q4 of 2019 from the opening of 50 new stores in Ontario. That’s on the back of a 50 per cent drop from June to July, according to Health Canada figures.
“Our industry forecast does not anticipate an acceleration in growth until Q2 of 2020, when we believe there will be meaningful store roll-outs in Ontario and some Rec 2.0 sales,” Chen and Sklar wrote. “Our near-term estimates reflect our view that market shares, and revenues, for licenced producers growing in large-scale facilities (Aphria, Aurora, Canopy, and Tilray) will be flat to down sequentially until more retail stores open.”