Now here’s something you don’t see every day.
Up in Canada, investment banker Seaport Global just announced a first of its kind offer to cart its investor clients around Canada aboard a “magic bus” — they didn’t call it that, so we will — as part of a tour of cannabis production facilities operated by Canadian marijuana companies Aurora Cannabis (ACB), Hexo (HEXO), Canopy Growth (CGC), and Aphria (APHA).
(“Paging Willie Nelson. Your bus is about to depart the station.”)
Seaport’s “inaugural get on the Bus tour” will depart Quebec on June 3 and continue cross country to Ontario, eventually ending on June 4, and provide investors a chance to quiz management teams on such fascinating subjects as “about forward capital allocation, potential market oversupply, global expansion plans, anticipated product/market development, and strategies for the US market.”
No word on whether refreshments will be provided.
That’s the headline news — but seeing as this offer is limited to folks who know an “SGS salesperson” or “analyst team” to contact, it would appear that space on this magic bus will be limited to very well-heeled Seaport Global clientele. As for the rest of us, the great unwashed of marijuana investing, we may find more of interest in Seaport’s executive summary of the state of the marijuana market that Seaport and its clients will be delving into next month.
To wit, Seaport’s Brett Hundley notes that right now, the Canadian cannabis market is worth about $1 billion, with demand for about 600,000 kilograms of marijuana (in all its forms) per year. (Which works out to one kilogram of generic pot product costing about $1,700 — or about a buck-seventy per gram).
Hundley sees this market growing about 10 times in size “over time,” to $10 billion in annual sales, with eventual demand by weight equaling 5.5 million kg. (Or put another way, $1,800 per kilo, or a buck-eighty per gram).
Now, we can see the economics students in class waving their arms and objecting that this doesn’t sound right — that as the marijuana market matures and supply of legal pot explodes, demand should go up and prices should come down. And we agree with you — but this is Hundley’s show. Hundley may also be factoring inflation into the picture, in which case, it’s entirely possible that $1.80 a gram seven years from now will be a cheaper price than $1.60 a gram is today.
Other points related by the analyst in his write-up, which may be of interest to investors lacking tickets to ride the magic bus: Hundley notes that currently, Canadian pot companies are producing pot at the rate of about 725,000 kg per annum — which means more than 20% oversupply for a market that’s currently only demanding 600,000 kg a year. The analyst thinks that over time, this oversupply will moderate. However, he also notes that producers plan to eventually produce more than 6 million kg of pot per year — which is also more than Hundley estimated end-market demand of 5.5 million kg, seven years from now.
Long story short: Marijuana is in oversupply right now, and could very well remain so in the future. Cannabis investors would like to snag a seat on Seaport’s magic bus, and ask Hexo, Canopy, Aurora, and Aphria how they plan to rectify this situation.
Good luck with that.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.