AltaCorp Morning Note ...Thursday, November 7, 2019 9:30 AM
LIFE SCIENCES:
Canadian Dried Cannabis Inventory and Sales from October 2018 to August 2019. See Chart of the Day here.
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Canadian Dried Cannabis Inventory and Sales: total sales of dried cannabis in August 2019 increased by 10.5% compared to July 2019, from 11,692kg to 12,917kg. Dried cannabis finished inventory held by cultivators, processors, distributors, and retailers was 60,872kg at the end of August, while dried cannabis unfinished inventory stood at 328,187kg.
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Finished Inventory Turnover Shows Healthy Inventory Absorption: We estimate that annual finished inventory turnover at the end of August 2019 stood at ~2.5x for the year. Dried cannabis finished inventory turnover is roughly flat from June 2019, which could indicate inventory levels are stabilizing. Accordingly, the volume of finished inventory has grown 24.4% from June 2019 to August 2019, slightly outpaced by sales volume growth of 29.5% during the same period.
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Unfinished Inventory Building Up Ahead of Cannabis 2.0: Unfinished dried cannabis may be processed and used as input for the manufacturing of cannabis derivative products, such as beverages, chocolates, soft gels, and vapes.
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Extractors May Benefit: we view the demand for extraction and manufacturing services for derivative products to increase significantly. Valens GroWorks (VGW, O/P, TP$10.25, here) and
MediPharm Labs (LABS, O/P, TP$7.50,
here), both which have already announced several private label and white label agreements, are well-positioned to capitalize on that opportunity.
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| Today's Featured Research |
| Chart of the Day: Life Sciences | Canadian Dried Cannabis Inventory and Sales from October 2018 to August 2019 (November 7, 2019) |
Source: Health Canada, AltaCorp Capital Inc.
· Canadian Dried Cannabis Inventory and Sales: In today’s chart of the day, we show Canadian dried cannabis inventory and sales from October 2018 to August 2019. According to Health Canada, total sales of dried cannabis in August 2019 increased by 10.5% compared to July 2019, from 11,692kg to 12,917kg. Dried cannabis finished inventory held by cultivators, processors, distributors, and retailers was 60,872kg at the end of August, while dried cannabis unfinished inventory stood at 328,187kg.
· Differentiating Finished and Unfinished Inventory: Finished inventory refers to dried cannabis held in stock by a cultivator, processor, distributor, or retailer that is packaged, labeled, and ready for sale, whereas unfinished inventory is not packaged, labeled, and ready for sale. As such, dried cannabis unfinished inventory may be destined for further processing into other product formats.
· Finished Inventory Turnover Shows Healthy Inventory Absorption: Dried cannabis finished inventory turnover may provide a useful metric to evaluate current inventory levels and potential undersupply or oversupply. We estimate that annual finished inventory turnover at the end of August 2019 stood at ~2.5x for the year, based on August 2019 annualized sales numbers. In our view, this is a healthy annual inventory turnover when compared to other industries. Further, dried cannabis finished inventory turnover is roughly flat from June 2019, which could indicate inventory levels are stabilizing. Accordingly, the volume of finished inventory has grown 24.4% from June 2019 to August 2019, slightly outpaced by sales volume growth of 29.5% during the same period.
· Unfinished Inventory Building Up Ahead of Cannabis 2.0: In our view, the build-up of dried cannabis unfinished inventory indicates cultivators and processors are stocking up ahead of the introduction of cannabis derivative products into the Canadian market. Unfinished dried cannabis may be processed and used as input for the manufacturing of cannabis derivative products, such as beverages, chocolates, soft gels, and vapes.
· Extractors May Benefit: With the expected introduction of new cannabis derivative products into the Canadian market later this year, we view the demand for extraction and manufacturing services for the production of private label and white label cannabis derivative products to increase significantly. We believe companies specialized in extraction may benefit significantly. In our view, Valens GroWorks (VGW-T, OP, PT $10.25, here) and MediPharm Labs (LABS-T, OP, PT $7.50, here), both which have already announced several private label and white label agreements, are well-positioned to capitalize on that opportunity. | |