Prohibition Partners' North American Cannabis Report: Second Edition

The North American cannabis industry saw significant developments in 2020, which is expected to continue throughout 2021. There has been an increase in investment due to the US 2020 election outcomes as all cannabis ballots in Arizona, Mississippi, New Jersey, Montana and South Dakota passed. Alongside the cannabis ballots, President Joe Biden and Vice President Kamala Harris have been inaugurated into the White House, and the traditionally cannabis-friendly Democrats have substantial control over Congress. These developments have issued a wave of hope that the US will likely see federal cannabis reform soon. With all the positive news surrounding the US cannabis industry, public cannabis companies such as Tilray, Cronos Group and Canopy Growth have seen a significant surge in their share price in the last two months. 

Although 2020 was a slow year for the public markets as the COVID-19 pandemic severely impacted cannabis companies and the expected mergers and acquisitions failed to materialize. The majority of public cannabis companies managed to stay afloat and push through to the dawn of a positive 2021. The Horizons Marijuana Life Sciences Index Exchange-Traded Fund, an ETF that trades on the Toronto Stock Exchange that is perhaps the most accurate performance gauge for the sector as a whole, has doubled since America’s election day. HMMJ was trading at $6.33 on Nov 4, 2020, but by Feb 5, 2021, the day before Joe Biden’s inauguration, HMMJ closed at $13.83. This not only shows the potential growth but also highlights the growing investor appetite in the industry. In 2021 it is expected that the cannabis industry will witness a rise in M&A activity, with Tilray and Aphria announcing a planned merger giving the combined entity a market value of US$3.9 billion. 

As COVID-19 is changing the way industries have to operate, the North American cannabis industry adapted to the ongoing changes that brought various challenges and opportunities. To minimize operational costs, cannabis companies had to make adjustments by closing facilities and laying off employees. Cannabis companies such as Canopy Growth, Aurora and Leafly all had to lay off employees as lockdown restrictions made it harder for them to operate efficiently. However, there is a silver lining, as lockdown restrictions boosted cannabis sales with US states and Canadian provinces announcing record highs. With cannabis businesses being deemed essential, consumption increased as adult-use consumers purchased cannabis to cope with lockdown-related anxiety and boredom. The online cannabis and delivery markets saw exponential growth and made more consumers accustomed to ordering their products through legal online channels. 

As access through legal channels of adult-use cannabis becomes prolific, and cannabis companies focus on quality products at lower consumer prices. The adult-use cannabis market will soon outpace the illicit cannabis market. In the second quarter of 2020, Canada’s households spent CA$648m on adult-use cannabis and spent CA$155m on medical cannabis. Combined, this outpaced the illicit market, which reached CA$784m during the same quarter.  Due to the spike in retail sales of adult-use cannabis, legal cannabis sales now account for 50.5% of the total expenditure on cannabis sales. Prohibition Partners estimates that in 2020, 1.4 million people in Canada consumed legal adult-use cannabis products with the number projected to surpass illicit market users between 2022 and 2023. By 2025, we predict the number of adult-use cannabis users in Canada to reach 3.4 million.

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