Although Canada’s recreational cannabis market failed to exceed expectations in 2019, the market faced significant headwinds, and this is a trend that seems to be abating.
We believe that two main factors will play a key role in how the Canadian cannabis retail market grows from here. These factors are related to the number of open dispensaries and the types of products that are allowed to be sold. In late 2019, the edibles and vape pens were legalized in Canada and we are bullish on the growth prospects associated with this vertical.
In the US, we have seen increasing consumer demand for cannabis derivative products like edibles and vape pens. The cannabis derivative market represents a multi-billion-dollar opportunity and is a vertical that we are excited about. Over the next year, we expect Canada’s recreational cannabis market to benefit from an increasing number of open stores and this should serve as a major catalyst for growth.
We are favorable on the long-term opportunity associated with the Canadian cannabis retail market. We believe that the vertical is in the early innings of a major growth cycle and want to highlight 3 companies that have been executing on this aspect of the industry.
Inner Spirit: A Canadian Cannabis Retailer that is Flying Under the Radar
Inner Spirit Holdings Ltd. (ISH.CN) has been laser focused on the Canadian cannabis retail market and has a network of recreational cannabis stores that operate under the Spiritleaf brand. The Spiritleaf network includes franchised and company-owned stores as well as an Ontario retail partnership. Spiritleaf has been able to secure strategic relationships with industry leaders like HEXO Corp (HEXO.TO) (HEXO) and Tilray, Inc. (TLRY) and we are favorable on this aspect of the story.
Earlier this year, Inner Spirit reported to have generated $29+ million in system-wide retail sales and served more than 700,000 customers in 2019. The Spiritleaf retail cannabis store network includes 43 franchised, licensed and corporate-owned stores in Alberta, British Columbia, Saskatchewan and Ontario. Over the next year, the management team expects to significantly increase the number of open stores and we are favorable on this opportunity for the business.
In addition to the previously announced nine additional franchise locations (expected to open in Alberta and British Columbia) in 2020, Inner Spirit is highly focused on expanding into other provinces. In the near future, the company plans to apply for additional retail operator licenses in Ontario and Saskatchewan. These are markets that we are favorable on and the entry into these provinces should prove to be a catalyst for growth.
One of the most important aspects of the Inner Spirit story is related to the relationships it has secured with leading Canadian Licensed Producers (LPs). We believe that the market does not fully understand how these relationships will support growth over the long-term and are of the opinion that it is missing out on something substantial.
Cannabis 2.0 in Canada is also expected to serve as a catalyst for growth and we are favorable on the leverage that Inner Spirit has to it. Through the launch of the Spiritleaf Collective members’ program, the company has enrolled more than 14,700 customers in just the first few weeks and we are favorable on the amount of value that can be created through this network. Inner Spirit represents a multi-faceted growth story and we will monitor how the management team is able to drive the operation forward.