In the past couple of years, the hot word in the cannabis industry has been Canada. With an established medical cannabis system and a blessing from the federal government to move forward with full adult legalization this summer, the country has quickly emerged to the top of global leadership in the game. The ability to act across international markets in a way the United States has not, has given Canadian entrepreneurs a hefty advantage in securing licenses to supply cannabis to the rapidly increasing number of countries which are investing in medical cannabis.
However, 2018 is still early in the game for a global industry that is predicted to skyrocket from a current value of around $7.7 to a whopping $31.4 billion by 2021. Knowing which groups will end up commanding those figures three or five or ten years from now is still only a guessing game.
“This all begs the question, are Canadian companies overvalued and overextended? These valuations make little sense when viewed against these companies’ revenues. In no other industry could a company like Canopy Growth have a $4.9 billion valuation—more than 98 times its reported lifetime revenue of $46.8 million. Aurora’s valuation is over 220 times its reported lifetime revenue. These valuations are not being driven by current or even near-term projected revenue, but by speculation that these Canadian companies will eventually dominate the global cannabis industry. These companies have generated tremendous investor excitement by positioning themselves to be the dominant players when Canada fully legalizes for adults this summer, and by building out large-scale production facilities that can export into newly emerging medical cannabis markets in Europe, markets that are inaccessible to American companies that are in violation of federal law.
“Look under the hood, and these assumptions may be shakier than these companies would like investors to believe. Yes, Canada will be legalizing for adults later this year. But Canada’s entire population is only 36 million people, 3 million less than California alone. According to BDS Analytics, California is expected to be a $5 billion market in 2019, nearly $6 billion less than valuations of the top three Canadian companies.
“On the international markets, it is uncertain whether Canada will truly be the dominant global player on the export market. Canada hardly has the climate and conditions for large-scale greenhouse agriculture. There is a reason that the largest greenhouse vegetable producers in the western hemisphere are located in California, Arizona, Mexico, and Latin America. These same conditions will allow cultivators in those areas to produce cannabis at a fraction of the cost of similar-sized greenhouses in Canada. Meanwhile, Latin American countries are starting to allow large-scale cannabis production, with Colombia in particular making moves to be a large-scale exporter in the western hemisphere.”
Will Canadian producers continue leading the commercialization of cannabis, infiltrating new markets and establishing their brands presence? Or will other actors move in with cheaper and more effective means of production? Only time will tell. But time will move quickly.
Don’t get behind the times if you want to be in the cannabis space! Learn from the experts like Kris Krane, and network with top investors and entrepreneurs at the International Cannabis Business Conference. Tickets are selling fast for ICBC in Berlin, Germany next week on April 11-13, and no one will want to miss ICBC in Vancouver, BC, Canada on June 24-25. Reserve your spot in cannabis history today!