Thread by @freshfortune

Let’s talk about the “oversupply” of Canadian #cannabis ... the central pillar of the bear case against the entire sector.

1. The true Canadian market is huge.

2. In the short-term, access to it is artificially constrained.

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Canadian #cannabis “oversupply” caused by three things:

1. Slower than anticipated retail licensing by @GovCanHealth.

2. Competition with pre-existing black market.

3. LPs ramping up production to serve ENTIRE Canada+ market

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To be clear, slow roll out of licensed retail by @GovCanHealth is NOT a conspiracy against #cannabis.

Rather, it is a classic example of government not being built to move at the speed of business.

Still, it is a bottleneck.

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Good News: @GovCanHealth appears to be moving more aggressively now & catching up to demand.

Tons of new outlets are coming online now & this should be reflected in revenue across the #cannabis sector in the next few quarters.

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Black market #cannabis survives on three SHORT-TERM advantages:

1. Lower cost

As LPs build out production capacity, they create economies of scale the black market cannot match, that advantage will disappear.

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Black market #cannabis survives on three SHORT-TERM advantages:

2. Convenient Access

Slow roll out of legal retail by @GovCanHealth has propped up black market. But, as stated above that advantage is already disappearing.

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Black market #cannabis survives on 3 SHORT-TERM advantages:

3. Insufficient enforcement efforts

Likely, this is a conscious near-term choice by Canadian govt to focus on bringing legal retail online.

That will change soon.

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As legal #cannabis retail build out nears completion, 3 factors will lead Canadian crack down on black market.

1. Protecting Tax Revenue

2. Protecting Public Health

3. Easier distinction between legal & illicit product.

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3 things are lost in the myth of a persistent, competitive #cannabis black market.

1. Illicit product is not tested for safety. See the vape crisis.

2. Legal market will provide legit work for knowledge former illicit crew.

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But, the biggest nail in the coffin Of a persistent, competitive #cannabis black market is:

3. The NEW consumer which is the biggest market there is, not existing aficionados who used the black market before legalization.

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The NEW #cannabis consumer is your grandma, your school teacher, your accountant, your doctor.

They want:

1. Edibles, not smoke/vapor.

2. Safe & consistent doses; confirmed by testing.

3. Convenient, safe purchase options.

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LPs are ramping up to serve the NEW #cannabis consumer in Canadian & international markets.

If you think the old/current black market is the total addressable market (TAM) for #cannabis, you are not paying attention.

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So, is Canadian #cannabis “oversupply” real?

Sort of ... for next 6 months at worst.

After that, the near-term constraints of smaller retail footprint and the black market diminish great and disappear entirely within a year.

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Why is there “sort of” a #cannabis oversupply?

If LPs were NOT scaling up production NOW beyond NEAR-TERM market constraints they would not be ready to meet the explosive DEMAND waiting for those constraints to be removed.

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Don’t believe there is explosive #cannabis demand waiting for constraints to be removed?

Look no farther than US MSOs, particularly the recent numbers out of Colorado, the oldest legal market in the US.

They are CRUSHING it.

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And, US MSOs are succeeding in spite of no Federal #cannabis legalization (yet). no ability to legally bank (yet), and a black market far more robust than Canada’s.

All of that adds expense structures Canadian LPs do not have.

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The “oversupply” bear case for Canadian LPs is an extrapolation of oversupply issues US MSOs, particularly in Oregon, experienced early on.

US oversupply happened because #cannabis remains illegal at the FEDERAL level.

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While US #cannabis suppliers are called multi-state operators (MSO) that only means they operate multiple states.

It does not mean they can ship products between states (yet).

That remains a federal crime under current law.

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So, US #cannabis oversupply was never NATIONAL oversupply. It was STATE over supply.

Oregon built out more capacity than OREGON could support in the early days of legalization and had to heavily discount or destroy product.

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Interstate constraints also means US MSOs must duplicate production capacity in EVERY state and they cannot EXPORT.

Despite these challenges, US MSOs are proving the incredible strength of the NEW consumer #cannabis market.

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So, if bears are to cite Oregon as a case study supporting Canadian “oversupply”, they have to tell the ENTIRE story which, of course, they won’t.

It doesn’t serve their short positions.

FUD does.

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en.wikipedia.org/wiki/Fear,_unc…

In summary, Canadian #cannabis oversupply is “sort of” real, but created by artificial constraints on rapidly expanding market full of pent-up demand.

Within 3-6 months, those constraints will be GONE & revenue will rocket up.

#PotStocks $ACB $APHA $CGC $CRON $OGI $TGOD $TLRY

Trader? Play the near-term volatility swings created by the FUD.

Short? Set your stops and get out before you get squeezed.

Investor? Do your homework, pick your #cannabis stocks, get long & wait. You won’t be disappointed.

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I said the central pillar of the #cannabis bear case is fear of Canadian “oversupply”, which implies overall market is smaller than projected.

Above, I explain why that is not so, but did not explain why it is the “central pillar”.

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The second pillar of the #cannabis bear case is a tightening credit market, which is only tightening because of all of the FUD surrounding “oversupply”.

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The third pillar of the #cannabis bear case, which logically follows the first two, is fear that overbuilt facilities will have to idle and therefore force write downs.

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These “pillars” of the #cannabis bear case ... oversupply, tighter credit & write downs ... are snakes, each eating the tail of the other, creating a FUD loop.

GOOD NEWS: When “oversupply” myth dies, the others do as well.

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As soon as supply meets pent up demand, revenue accelerates and most of the #cannabis sector RACES through EBITDA+ straight to outright profitability.

And, when demand outstrips supply, prices, margins and profits all go up.

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Same arguments were made by dotcom bears. They were wrong.

Some companies WILL fail.

So, research deeply & choose carefully.

But the #cannabis sector will thrive, creating opportunities for generational wealth creation.

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👆🏼— @WolfOfWeedST

Thoughts?

Thx for the RT @WolfOfWeedST.