Categories: world

This Tiny Marijuana Stock Could Be Better Prepared For The Coming Supply Glut Than Canopy Growth And Tilray – The Motley Fool

A supply glut in the Canadian recreational marijuana market might be the last thing on everyone's mind right now. Den primære bekymring vedrører i øjeblikket forsyningsbrister. Marijuana producers can not ship enough cannabis to meet the heavy demand. Make no mistake about it, though, a supply glut is on the way. Opinions vary when it will hit, but it would not be surprising if the Canadian marijuana market experiences a supply surplus by 2020. The conventional wisdom is that the big marijuana producers like Canopy Growth (NYSE : CGC) and Tilray (NASDAQ: TLRY) which claims the largest market caps in the industry, will be in the best shape when the supply arrives in Canada. But a tiny marijuana stock that has largely flown under the radar Flowr (NASDAQOTH: FLWPF) &#821 1; Just might be better prepared for the coming Canadian oversupply than the big boys. Yes, a supply glut is coming A supply glut occurs when there is more than enough supply to meet demand. Canada does not have anything remotely close to this right now because the pent-up demand for recreational marijuana is very high and producers do not yet have the ability to grow enough cannabis to meet that demand. But that's definitely going to change. In August, my Motley Fool colleague Sean Williams put together a great analysis of how much production capacity could be on the way. Sean lukte at prognoserne fra de øverste tierkultiverne (herunder Canopy Growth), toplanters (med Tilray in the group – til…

A supply glut in the Canadian recreational marijuana market might be the last thing on everyone’s mind right now. Den primære bekymring vedrører i øjeblikket forsyningsbrister. Marijuana producers can not ship enough cannabis to meet the heavy demand.

Make no mistake about it, though, a supply glut is on the way. Opinions vary when it will hit, but it would not be surprising if the Canadian marijuana market experiences a supply surplus by 2020.

The conventional wisdom is that the big marijuana producers like Canopy Growth (NYSE : CGC) and Tilray (NASDAQ: TLRY) which claims the largest market caps in the industry, will be in the best shape when the supply arrives in Canada. But a tiny marijuana stock that has largely flown under the radar Flowr (NASDAQOTH: FLWPF) &#821

1; Just might be better prepared for the coming Canadian oversupply than the big boys.

Yes, a supply glut is coming

A supply glut occurs when there is more than enough supply to meet demand. Canada does not have anything remotely close to this right now because the pent-up demand for recreational marijuana is very high and producers do not yet have the ability to grow enough cannabis to meet that demand. But that’s definitely going to change.

In August, my Motley Fool colleague Sean Williams put together a great analysis of how much production capacity could be on the way. Sean lukte at prognoserne fra de øverste tierkultiverne (herunder Canopy Growth), toplanters (med Tilray in the group – til tross for det store markedskapet, selskabets kapacitet er ikke i øvre echelon), og mindre growers . Når han summerte alle disse projektioner, kom Sean til en total produktionskapacitet på omkring 3 millioner kilo per år frem til 2020.

What about demand? Professional services company Deloitte thinks that the Canadian Canadian marijuana demand will be around 600,000 kilograms. That’s a little lower than the official demand estimate of 650,000 kilograms per year from the Canadian Parliamentary Budget Officer, which serves a function similar to that of the U.S. Congressional Budget Office.

The most optimistic projection for Canadian marijuana demand that I have seen is 900,000 kilograms per year. This estimate was made by Colorado-based cannabis consulting firm Marijuana Policy Group.

But if you take even the rosiest demand estimate, it pales in comparison with Sean’s 2020 capacity projection. Sure, Canadian marijuana growers may not be able to produce 3 million kilograms of cannabis annually within a couple of years. Expansie-inspanningen kunnen langer duren dan verwacht. Smaller players could run out of money. Men, selv om den faktiske årlige kapaciteten forløber som en tredjedel af hvad der er projiceret (et meget usandsynligt scenario, i mit synspunkt), er vi stadig i stand til at se en betydelig forsyning glut i Canada.

Mest sandsynligt at overleve og trives

So with a supply glut in Canada seemingly inevitable, the question is: Which companies are most likely to survive and thrive? And that’s where tiny marijuana producer Flowr comes into the picture.

When supply exceeds demand, prices plunge. That’s what is likely to happen in a few years in the Canadian marijuana market. Bedrijven met lage bedrijfskosten zullen beter kunnen omgaan met een lage-prijsomgeving.

In de cannabisindustrie is de sleutel tot het bereiken van lage bedrijfskosten hoge yield per vierkante meter. I recently spoke with Flowr co-founder and chairman Steve Klein, who maintained that “the most important KPI [key performance indicator]” in the industry is yield per square foot.

Flowr beats most of the major Canadian marijuana producers when it comes to crop yield. Its current yield translates to a cost per gram of 2.05 in Canadian dollars, well below Canopy Growth’s and Tilray’s cost per gram. Even better, Flowr thinks it can increase its yield and lower costs even more.

Small attributes Flowr’s success at achieving great returns in large part to the company’s president and co-founder, Tom Flow. Flow claims a solid track record in the cannabis industry with a “flush-and-drain” system of growing that’s challenging to use but generates impressive yields. His expertise helped attract Scotts Miracle-Gro subsidiary Hawthorne Gardening to enter into a research and development alliance with Flowr.

But there’s another reason why Flowr might be able to successfully navigate a supply glut. High quality should become even more important in a commoditized market. Flowr’s products are all grown in indoor facilities and do not require irradiation. Det problem med bestråling er at det negativt påvirker smak og smell av cannabis. Most of Flowr’s competitors irradiate their products to meet Health Canada’s safety standards.

Most other Canadian marijuana producers are shifting away from what Flowr refers to as “ultra-premium” products. Flowr’s plan is to keep focusing on high-quality cannabis while innovating in ways to improve yield and reduce costs.

A few caveats

There are a few things that investors should know, though. Flowr only has around 20% of its facility operational right now. Klein zei dat het bedrijf verwacht te zijn op 100% productie door mid-2019. Dette betyr at selskapets inntekter kan være begrænset for et stykke tid.

Also, we’ve only addressed the Canadian marijuana market. Growth in international markets should help absorb some of the supply glut that is almost certainly on the way in Canada. Larger companies like Canopy Growth, with its huge cash inflow from an investment by Constellation Brands will be in a better position to compete in the global marketplace.

Canopy Growth and Tilray could weather the storm in Canada relatively ja, om de er i stand til at kapitalisere på internationale muligheder. But high quality and high yields make Flowr a small marijuana stock to keep on your radar screen.

Share
Published by
Faela