Cannabis and the End of Work From Home

By Michael Hainsworth

We are seeing light at the end of the COVID tunnel as Canadians are slowly returning to work. The decline in Work from Home and the increase in the cost of living has slowed consumption growth in the first half of 2021. “As consumers are getting out of the pandemic bubbles of being at home, I think that there's more normalized consumer consumption,” says Charles Taerk, the President and CEO of Faircourt Asset Management and the co-manager of the Ninepoint Alternative Health Fund.

Inflationary pressures are also impacting the Cannabis industry. The cost of living in Canada rose in September a greater than expected 4.4% year over year to the highest reading since the sequel to the Matrix hit theatres in 2003. Investors can be forgiven for thinking there’s been a glitch in the numbers. Taerk points out it’s made consumers more price-conscious, “so what you're seeing is the continued emphasis in the value category in cannabis is really where that is playing out.”

The winners as we put down the pot and pick up the briefcase again are those low-cost producers. They’re able to withstand the pricing pressure and maintain margins. They’re also the up-and-coming companies Tilray CEO Irwin Simon calls “ankle biters”, and they’re taking a bite out of established players’ market share.

Taerk advises investors to look at Canada and the United States through a different lens. 3 out of 4 sales in Canada are for flower-based products while the U.S. market is more focused on what he calls “2.0 Product” – edibles and beverages. They’re higher-margin and appeal to a wider demographic. “The products have to meet consumer demand,” he states, “but the product quality that we have seen in Canada isn’t quite the quality that consumers are demanding. And so you’re getting a muddling through where there are very few performers that are excelling in the 2.0 products.”

Taerk says producers want to expand the market to “the Chardonnay drinkers” and that requires a product format that most people can understand. Indiva (NDVA.cve) has done a great job in working in the edibles business, he believes, and is gaining market share at a double-digit pace.

The Cannabis industry is headed in the same direction of the beer business, Faircourt’s CEO says. Much like how there were dozens of brewers in the 1950s, consolidation led to a few national brands with a collection of craft brewers. “We've had this huge influx of new operators,” he points out, “some feeling that originally it was going to be really easy, and now they realize operations are not easy to master.”

Meantime, the SAFE Act, designed to make access to capital possible within the traditional banking system in the States, has been rolled the into the $778 billion National Defense Authorization Act for 2022 on Capitol Hill. So how closer are we to giving companies the same rights as any other corporation to pursue financing and manage their strategy as we return to work in a slower-growth environment?

“We’re getting there,” he says. “I think, ultimately, in the next six months, SAFE as a standalone act gets approved.