Canada made history just a few weeks ago, when recreational marijuana sales were officially legalized. This date has been circled on the cannabis industry’s calendar for quite some time. Predictions preceding the highly expected date included long lines and product shortages and those predictions were accurate.
October 17 Canada’s Cannabis Day
On October 17, cannabis connoisseurs lined up at the few operational marijuana retail locations across Canada (if lucky enough to live a province with operational cannabis stores on Legalization Day) to make their first official recreational purchases. While sales were expected to be high once the prohibition was lifted, the actual numbers exceeded expectations. According to USA Today, “SDQC, which manages sales in Quebec, recorded more than 12,500 in-store transactions and 30,000 online orders the first day, ‘far exceeding’ expectations.”
Canada’s Cannabis Demand Causes Consumer Chaos
Retailers across the country are reporting product shortages which have frustrated many customers. There have even been issues with product delivery. One customer in Ontario told the CBC that he placed his first order at midnight on October 17 with the Ontario Cannabis Store. According to the CBC, “Everything went smoothly until he got a no-reply email informing him his order had been inexplicably canceled. He called the customer service number but couldn’t get through. He used the callback feature but hasn’t heard anything.”
Another customer described his customer service experience as subpar. He went as far as saying that he has better customer service from the cannabis black market.
Learning from Nevada
The issues surrounding the Canadian cannabis market are not isolated. For example, when Nevada legalized recreational use in 2017, the state was hit with product shortage issues. The shortages were so bad that Nevada had to issue a state of emergency within the first two weeks of legalization. To remedy the situation, Nevada had to address the supply chain issues relating to wholesale distributors.
Canada did try to avoid the same problems that plagued the Nevada recreational market, but it appears that there are still some things that need to be resolved within the system. The solutions created to address these challenges offer opportunities for companies in the cannabis space.
Recreational Sales Are Through the Roof in Canada
There is a huge market for the recreational cannabis industry and retailers made big sales during the first couple of days of legalization. One example is Cannabis NB. The New Brunswick retailer reportedly made sales totaling almost $945,000 within the first 48 hours of legalization between online and in-store transactions. Cannabis NB is not alone in their success.
The first day of Canada’s legalization saw a lot of sales for the recreational cannabis market. Shopify which is an e-commerce platform that services many of the provincial online stores reported that they “recorded more than 100 cannabis orders per minute.” Ontario’s provincial online retailer also saw significant sales on the first day. According to the province’s Premier, Doug Ford, government’s online store “processed 38,000 orders by mid-morning.”
Pot stocks Turnaround Imminent After Post-Legalization Burn Out
While recreational use has driven sales and demand through the roof, one darling of the cannabis industry struggles: marijuana stocks. This year has been a boon for the publicly traded cannabis companies. Every day over the summer one company after another announced some major acquisitions or partnerships. All of the hoopla around the industry made investors anxiously anticipate the day when Canada would become the first G7 nation to legalize recreational marijuana. That day came, and pot stocks tanked.
Companies like Tilray Inc (NASDAQ:TLRY) and Canopy Growth Corp (NYSE:CGC) saw their stocks drop by as much as 10 percent within the first week of legalization. The market has been particularly unkind to Tilray as it has seen a 30%+ decrease in the last month.
Investors and traders have long speculated on the impact that Canada’s legalization would have on the cannabis market. Some believe that the hit the market took is because investors are anticipating the changes promised by U.S. President Donald Trump.
Trump to Change America’s Pot Policy
Trump has promised to reform the federal marijuana laws after the country’s midterm elections. These reforms would make cannabis legal for medical purposes. With over 30 states currently allowing some form of marijuana legalization, the president’s move to reform the country’s current prohibition would align with public opinion. Support for legalization in America is at an all-time high. A poll shows that two-thirds of the country believes cannabis should be legalized. The country’s overwhelming support for legalization as well as Trump’s promise has piqued the interest in the American cannabis industry for traders.
GTEC is in a Strong Position
This shift in focus may seem like a challenge for some Canadian cannabis companies, but for others like GTEC Holdings Ltd. (TSXV: GTEC) (OTC Pink: GGTTF), this shift creates an opportunity.
GTEC has been working on deals over the month that positions the company to address product shortage issues that have plagued the Canada’s early recreational roll-out.
The first announcement came in September when GTEC signed an agreement with Pack4U a company that will provide “pharmacies, once the Pharmacy Legislation is in place, with access to medications such as cannabis in solid oral form packaged in multi-dose strip packaging format through its unique inventory tracking system.” The agreement would “position GTEC alongside Pack4U’s wholesale distribution network as its exclusive provider of cannabis to the Canadian market” with exclusivity until 2020.”
September was also a month of innovation. GTEC announced that they were partnering with Integrated Cannabis Company, Inc. (CSE: ICAN, OTCQB: ICNAF) to “co-development and marketing of novel spray products, utilizing proprietary nanotization technology containing both Cannabidiol (CBD) and/or Tetrahydrocannabinol (THC) in the Canadian medicinal and recreational markets.” This partnership is an example of the company’s commitment to expand their product line.
GTEC CEO, Norton Singhavon, said, “We are very excited to be working with Integrated Cannabis and their unique line of the X-SPRAY™ products. As we continue to push towards positioning ourselves as a preeminent cannabis company it is critical to diversify our product offering with formulations that are both novel and offer alternative delivery methods.”
During the same month, GTEC announced that they incorporated into the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ) a financial services company.
October has also been an active month for the company. In preparation for the recreational launch on October 17, GTEC revealed six craft cannabis brands:
- BLK MKT ™ A homage to the legacy of cannabis prohibition. BLK MKT ™ has been designed to resonate with experienced cannabis consumers who seek high THC strains.
- COGNŌSCENTE ™ For the sophisticated aficionado who appreciates excellence in flavour, aroma and terpene profiles.
- TENZO ™ A balanced lifestyle brand, with a variety of strains and products to provide a diverse palette of desired effects to its consumer.
- TREE HUGGER ™ A superior line of organic cannabis products. An earthy and approachable brand for the consumer who demands purity in an environmentally friendly product.
- FN ™ A specialty brand that will be deployed in partnership with our First Nations partners, to celebrate and honour the first Canadians.
- GREENTEC™ A flagship brand catering to the medical market, designed specifically to aid and support patients with various ailments that respond positively to cannabinoids.
Each brand is designed for the specific needs and lifestyles of Canada’s diverse cannabis consumer base. GTEC’s Creative Director, Adil Hirji, explains “it was a challenging yet exciting experience to help create the strategy and visuals for our brand portfolio. Diving into the minds of new and experienced cannabis users, in order to truly understand what they were looking for in this market was enlightening.” This type of branding helps the company overcome some of the challenges presented to the industry regarding marketing and packaging restrictions.
As the company expands its branding strategy, they are also preparing for the first retail stores to open. GTEC, in partnership with Cannabis Cowboy, Inc., is either pursuing or in the process of opening retail sites in Alberta. Cannabis Cowboy is located in Alberta and is slated to open eleven cannabis retail locations by the end of the year and an additional fourteen storefronts in 2019. Saskatchewan will have a storefront in Nipawin and an e-commerce site with a warehouse in Saskatoon. Manitoba is expected to have seven locations. GTEC has passed the initial screening in the province and has the opportunity to enter the lottery for a license. In British Columbia, GTEC is working to secure seven locations.
On October 19th the company announced that they had entered into a definitive agreement with Invictus MD Strategies Corp. (TSXV: GENE) (OTC: IVITF). The agreement helps GTEC expand its cannabis retail footprint to help meet the needs of the demanding cannabis market. GTEC will receive a $2 million non-revolving unsecured convertible loan with an 8% interest rate. Other terms of the deal provide Invictus with First Right of Refusal “to fill up to thirty percent (30%) of any third-party supply agreement that GTEC, or its subsidiaries, has for the supply of cannabis flower or oil, whether domestic or international, for a period of two years from the date that GTEC, or one of its subsidiaries, receives its first Sales License from Health Canada.”
The craft cannabis company’s latest news release from October 25th, shows the company has finalized an agreement with F-20 Developments Corp. to develop a 194,000 sq. ft. indoor cannabis cultivation facility. The two companies plan to form a joint venture called, 3PL Ventures, Inc. Under the terms of the agreement, F-20 will hold 51% ownership and GTEC Holdings will own 49% of the joint venture. However, GTEC Holdings has the ability to obtain an additional 1% ownership in 3PL Ventures, if the company is able to complete the License Transfer Agreement (LTA).
The LTA says, “GTEC, through a wholly-owned operational subsidiary will apply for, and transfer to 3PL, such licenses to allow 3PL to become a Health Canada Licensed Producer.” This is in addition to applications for a Dealer’s License under the Narcotics Control Act or any other license that would allow for the import and/or export of cannabis and cannabis derivatives.
The demand for cannabis in Canada has become a very good thing for GTEC. Despite the marijuana stock sell-off post-legalization, GTEC’s management continues to seize key opportunities. Currently, GTEC shares appear to be very oversold and should be ready for a bounce here in the short term, according to technical analysis. With all of the moves the company has made in the last month between branding and expanding retail operations, GTEC is positioned to not only withstand the current downturn in the market but also thrive in the long term.
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