RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:News Hey Watch,
Thanks for the sincere rejection to my love letter -- I was worried that my feelings wouldn't get through. Also, kudos on the solid performance.
My point is more that things are usually a bit more gray than we like to paint it. The affect of personal greed on operations is going to be proportional to how willing and comfortable employees / management are in pursuing that. This will come down to corporate culture, for one, but I have no evidence that it's as powerful a factor as many doomsayers make it sound.
It can be pervasive in a large company, with poor culture and limited accountability, but from the outside, Supreme seems to value their culture, brand and productivity. As a counter-point, the Omnibus Incentive Plan which will be voted on, is an indicator of a dissonance between how management sees their performance and how investors might see it. I'll hold on to my naive optimism with both hands for as long as I can stomach it.
"They should be and aren't.. make a hope and a dream Canada eventually will change laws, open stores and they can produce below black market, good question why they aren't downsizing and instead hiring people."
"these are long standing issues, most of them are impossible or nearly impossible to change, some with supreme only but numerous items are for LP's wide"
I have to break this down in parts so that I can hope to pick your brain a little bit about this. You've made a few statements/assumptions mixed up into there, so I'm just going to try and lay them all out:
1. There is no growth in the legal Cannabis market currently, or it's not enough to sustain current projections.
2. Regulators are not currently trying to figure out how to extract as much growth as possible out of this industry and eventually stamp-out a large portion of black market sales.
3. Canada is not already in the process of opening more stores.
4. LPs must produce and sell below black market prices.
5. There is limited upside from further developments in the legal cannabis industry.
6. The black market is a problem.
I actually added #6, to my surprise, while researching this post. I've gotten most of my numbers from https://www150.statcan.gc.ca/n1/pub/13-610-x/cannabis-eng.htm. All I've heard about is how the black market is proving persistant, but the numbers don't seem so glib. Were people expecting 100% conversion in only one year?
-In one year household expendetures for licensed non-medical cannabis has gone from $170mil/Q to $417mil/Q. That's an increase of ~145% in four quarters.
-Meanwhile, household expendetures for unlicensed product have gone from $1187mil to $860mil. That's a decrease of 28% in four quarters.
-The decrease in BM for the last quarter was ~6%, a slight decrease versus the yearly rate.
-Based on the last quarter's run-rate, non-medical licensed growth would still be 50% per annum, not accounting for the shifting trend.
There's no doubt that many companies have been too aggressive in trying to capitalize on this growth, but that doesn't mean the industry is in a sorry state and that there are insurmountable sector-wide problems. Do you not agree that Supreme's goal has been to try and tread a different path than the others? You're talking about lowering prices to meet the black market, and Supreme just raised the price on their herb! (Not that I think that was smart. Maybe you'd call it a, "hail mary," even.)
Supreme has taken a path that, at least on the surface, is built to minimize the risk to all these factors:
1. The Cannabis industry doesn't necessarily need to continue growing for Supreme to grow sales of their lines/products.
2. Regulations are still being sorted out, but Supreme has been strategically reinvesting in their business for quality, not just volume.
3. More stores are still opening, but more important for Supreme is their ability to establish the brands and grow in-store sales to regulars.
4. The licensed and unlicensed markets are certainly different. I've been through different parts of the black market, and I will confidently only buy from reputable sources. I've seen far too many insects, mold, seeds, pesticide use and what-have-you. Not that this doesn't happen in retail, but all the more reason why there will be demand and growth for premium suppliers/growers. Considering the recent, "vaping epidemic," I'd especially rather not be smoking fungicide-laden cartridges that release cyanide into my lungs.
5. I don't know much about, "Cannabis 2.0," but Supreme and most Canadian LPs are global anyway. It's not like there's a lack of upside, if you have something worth selling.
6. As far as I could tell from your response, the main thing I could pin is your concern for the black market. It may be a bit excessive for me to say that the black market is a non-factor, but I don't think it should be worth serious consideration. There are a plethora of benefits to the licensed market that, at best, only trickle down to the black market. I think it's a bit of a misnomer to say that, to succeed, LPs must capture ALL THE CANNABIS SALES. It's not a race to the bottom until somebody makes it that way. Black market prices have declined >9% YoY and a properly operated and licensed business will never compete with the black market.
Hope to hear your side to this & best wishes,
-Dubby