PYPL - The Cannabis Industry Is Hoping for a Green Christmas
COVID-19 plunged the economy in a crisis like no other, testing the resilience of the retail industry. Many have suffered great loss, some are struggling just to remain above waters but some have also managed to adapt by innovating. Consumer shopping behavior and preferences have changed for good. This remote and contactless environment was a difficult for cannabis retailers to adapt to. Village Farms International (NASDAQ:VFF), GrowGeneration (NASDAQ:GRWG) and even the much-maligned Aurora Cannabis (NYSE:ACB) delivered fantastic gains in November, with their shares more than doubling.
The favorable factors
Marijuana stocks overall enjoyed a boost from the U.S. elections that took place on November 3. Additionally, the election of a Democratic candidate could signal a friendlier federal stance when it comes to marijuana. Voters of Arizona, Montana, New Jersey, and South Dakota residents chose to legalize recreational marijuana whereas of Mississippi and South Dakota approved the initiatives to legalize medical cannabis.
Winner #1 – Aurora
Aurora Cannabis ranked as the top pot stock of the month as its shares skyrocketed nearly 186%. Despite still losing market share in Canada’s recreational marijuana market, Aurora posted better-than-expected fiscal 2021 Q1 results at the beginning of November. While predicting a revenue in the range between CA$60 million and CA$64 million in Canadian dollars, it generated net revenue of CA$67.8 million. The Canadian producer stated it’s on track to generate positive adjusted EBITDA in its upcoming quarter, Q2 of FY21.
Winner #2 – Village Farms International
Village Farms International stock soared nearly 144% higher last month and its numbers were a lot better than Aurora’s, with strong revenue growth and a small profit in Q3.
But even more important for its long-term outlook was its full acquisition of Pure Sunfarms, a joint cannabis venture it formed with Emerald Health Therapeutics. Throughout November, Pure Sunfarms added several jewels to its crown. It received a license to conduct sensory evaluation trials for cannabis from Health Canada, it launched new CBD products in Hong Kong, and signed a medical cannabis supply agreement with Shoppers Inc.
Winner #3 – GrowGeneration
Shares of the biggest specialty hydroponics and organic gardening retail chain in the U.S jumped 110% in November . The votes to legalize marijuana in several states should create growth opportunities for the company. GrowGeneration’s growth prospects were already impressive prior to Election Day as it reported sizzling growth in Q3. Revenue soared 153% YoY to $55 million. Earnings increased 133% YoY to $3.3 million with part of this growth being attributed by its acquisitions. However, the company’s same-store sales rose 73% YoY year to $33.4 million, showing that it isn’t just acquisitions fueling GrowGeneration’s growth.
The most wonderful time of the year
Mitch Baruchowitz, managing partner at a New York-based private equity firm from the sector, Merida Capital Holdings, forecasts this holiday season’s sales will be the highest ever. Several factors support his belief. Legislation that is evidenced by recent ballot wins in both right and left-leaning states is opening new markets to millions of potential consumers. Moreover, cannabis purchases do have some seasonality, with holiday purchases growing over the past few years according to Headset, an industry research group. To meet holiday demand, some dispensaries are creating specialty products and holiday bundles that specifically target consumers looking for limited edition items or gifts, according to Baruchowitz.
2020 Thanskgiving Green Wednesday was a hit
The 2020 Green Wednesday blew sales records for several sellers. Lantern, a cannabis e-commerce marketplace and on-demand delivery service, cited an 87% increase in basket size compared to last year. Ganja Goddess, a California-based online shopping and delivery service in California, cited a 130% increase in sales compared to last year. Jane Technologies, Inc, an online cannabis marketplace partnering with more than 1,600 dispensaries and brands in 33 states, registered a 241% increase in online sales compared to last year’s figure.
Switching to e-commerce isn’t as easy as flipping a switch
Despite the wide availability of credit cards and online payments, credit card companies often choose not to service the cannabis industry because of its high risk and reputation. But instant purchases using digital wallets and PayPal (NASDAQ: PYPL) are gaining acceptance and popularity among cannabis consumers. The transition from traditional to digital forms of payment is necessary for the normalization and evolution of the cannabis industry.
Outlook
The industry is seeing a spike in acceptance of contactless shopping from both consumers and retailers during the pandemic. But the long-lasting impact of the pandemic on the society is yet to be seen. Many of the habits that we created during this unprecedented year are not going away any time soon. Though unexpected, Covid-19’s role in changing consumer purchasing behavior has forced the much-needed innovation across the economy and the cannabis industry is no exception. Based on existing data and developments, a green Christmas could be in store.
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