We left last week on the breaking news that Hexo admitted "a limited quantity" of cannabis was grown in unlicensed areas (called "Block B") of its UP Cannabis Niagara production facility acquired when it absorbed Newstrike in May. (The facility was mothballed in October.)
Financial Post, Bloomberg
Health Canada confirmed Hexo's version of the story, noting "Hexo proactively notified Health Canada and took actions to rectify the situation and return to compliance." The regulator judged the efforts "acceptable." This is a stark contrast to CannTrust's extensive efforts to cover up illegal growing.
MJ Biz Daily, Globe and Mail
Health Canada visited Block B in February 2019 as part of a facility inspection and did not notice unlicensed growing.
Canaccord Genuity cried foul that though the unlicensed growing was discovered and reported in July, it was not part of fiscal Q4 earnings report that included news Hexo was shutting down the location in question.
Friday morning, less than 12 hours before releasing a press release acknowledging the unlicensed growing, Hexo discounted its products by as much as 30% in the Ontario Cannabis Store.
Twitter—What's My Pot
The last week's headlines about the sector's earnings reports offered a variety of descriptors, all of them depressing. The "brutal" week was a "bloodletting," a "bloodbath," a "sea of red," a "flameout […] almost as bad as the dot-com bust." The Canadian market "continues its downward spiral," "the [cannabis] space could be the penalty box," and "The Pot stock bubble has burst." As for companies struggling to make it, "Some of these guys are going to disappear."
Financial Post, Bloomberg, HuffPost, MarketWatch, Canada.Com, Digital Journal, Financial Post, LA Times, CTV News
Cannabis sales volumes have grown by only 5.6% in the past quarter, while the number of products on the REC market grew by 20%.
Everyone agrees Ontario's inability to get REC stores open has been a blow to the fledgling legal market. Canopy CEO Mark Zekulin said, "Ontario represents 40% of the country’s population yet has one retail cannabis store per 600,000 people. […] The addressable market is nearly half what is expected.
Cannabis stocks have begun tentatively to nose their way up, following eight months of decline that sheared two thirds off cannabis stock values. Pot stocks had their best three days since January this week.
Industry opened a new front against Health Canada as CEOs from Aurora, Tilray, Supreme, Organigram, Canopy, Hexo, and other LPs published an open letter calling for Ottawa to end multiple cannabis excise tax stamps for each separate province.
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Ontario is moving toward a "hybrid" REC wholesale system. Though the province will still participate in REC wholesale, private contractors will soon be allowed distribute REC to retailers. LPs have complained for some time the existence of a provincial wholesaler increased per-gram prices.
Everyone agrees something needs to change in Ontario REC retail, and most agree the principal concern is the hugely populous province's small number of REC stores.
An Ontario government insider said the province is will abandon its doomed REC retail lottery system in favour of an "open allocation" system that would allow prospective retailers to apply online and pass background checks for quick approval to run a REC store.
Windsor's city council has reversed a decision delegating authority for processing individual REC store applications to city administrators after administrators, pressured by police, opposed the city's first REC store.
Though REC sales have increased since February with every new store open, they finally hit the wall in September and dropped from their August apex of $125M down to $122M across most Eastern Canadian provinces--except Quebec, whose SQDC has continueed opening new REC stores and thus increased its cannabis sales by 5%.
Twitter—Patrick Cain, Global News
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Following several months of fruitless negotiations between the SQDC and the various unions accredited at 20 of the 30 SQDC stores, the Quebec labour minister named a special mediator to help secure the first collective agreement between the SQDC and its employees.
The day after BC's provincial Community Safety Unit raided the Victoria Cannabis Buyers Club, MED patients defiantly packed the non-profit compassion club, as protestors supporting the Club gathered on the steps of the provincial legislature. They plan to protest the raid every Friday at noon.
CTV News, Castanet, Victoria Times-Colonist, CBC British Columbia
The BC government acknowledged that unlicensed cannabis is part of the economy of the Central Kootenays region, home to an estimated 2,500 growers, as it launched the $675,000 Cannabis Business Transition Initiative to help bring legacy growers into the legal economy.
Aurora reported stockholders of 94% (worth roughly $230M) of its convertible debentures—bonds paying 5% interest that may be converted to stocks at a fixed rate—agreed to a company plan to offer 6% discounts on prematurely converting their debentures to stocks. The deal will help lower Aurora's debt--albeit at the risk of diluting the company's stock.
Newswire, The Deep Dive, Market Realist
Analysts have been sounding the alarm about the predominance of risky convertible debt for some time. Unless the market rises and companies flourish, convertible debentures can shackle firms to punishing interest.
Globe and Mail
Cannabis companies do not have a lot of financing options, so many have concluded risky financing is better than none.
Globe and Mail
Canopy has no further plans to expand inside Canada following a brutal $374.6M quarterly loss posted two weeks ago, which CEO Mark Zekulin blamed partly on the lack of REC stores open in Ontario.
Alberta Farm Express, NewsWire, Bloomberg
Though Cannabis NB has blamed competition from unlicensed REC sellers for its failing fortunes, former Ontario Regional Chief of the Assembly of First Nations Isadore Day argued First Nations—left out of the Cannabis Act entirely—should not be considered part of the illegal market.
CBC New Brunswick
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