A Cannabis Industry Insider’s Take on Day 1 of Legalization

To learn more about what will happen on day one and beyond we talked to a cannabis industry insider, Vahan Ajamian, who has boots on the ground in this fast-growing category.

lush marijuana plants
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The clock is ticking down to October 17, when Canada becomes the first major country to legalize recreational adult-use of cannabis nationwide. To learn more about what will happen on day one and beyond we talked to a cannabis industry insider, Vahan Ajamian, who has boots on the ground in this fast-growing category.

Ajamian is the managing director of analyst relations at MedMen (CNSX:MMEN), which operates dispensaries in several states in the U.S. and recently announced the largest acquisition to ever take place in the U.S. cannabis industry.

The Motley Fool: What are your thoughts on the significance of October 17, 2018?

Ajamian: Canada fully legalizing marijuana for adult use is a historic moment that the whole world should celebrate. This is the first developed nation to recognize that legalizing and regulating marijuana is a better way to go than a blanket prohibition that stigmatizes and criminalizes people for using something that enhances lives. By some estimates the Canadian marijuana market has a potential to reach $6.5 billion in annual sales. By comparison U.S. potential sales are $75 billion. California alone could be about $11 billion. Although Canada’s total addressable market is small compared to the U.S., the symbolism of the moment cannot be overstated.

TMF: What should consumers be expecting on the 17th?

Ajamian: Retail sales will be more an evolving process than a one-day event.  In Ontario, for example, there won’t be any physical stores at least until April 1, 2019, but consumers will be able to buy online on the Ontario Cannabis Store’s website.  It seems brick and mortar retail will be limited initially in the other provinces as well. British Columbia will reportedly have one store on the first day of sales.  In Quebec, I understand the government plans to have 12 physical stores open initially. There will be some initial bumps on the road, but things should settle down soon.

Longer-term, more stores will open in Canada and the industry will become more and more mainstream.  We certainly intend to play a part in that through our JV with Cronos Group.  Our intention is to open flagship stores in provinces that will allow private retail – in particular British Columbia, Ontario and Alberta.

TMF: How might the first year play out for companies in Canada? 

Ajamian: We expect the first year of adult legal cannabis in Canada to start slow and then pick up speed. There will be a limited number of stores and products in the first year, but that should change rapidly as demand grows and the program matures.  Our stores in California have over 1,000 SKUs – everything from infused bath bombs to pet treats to breath mints.  But California had more than two decades of medical marijuana before starting its adult-use program. We have found that the new cannabis consumer often wants to learn about more product variety than just flower.  The Canadian market should mature into diversified offerings as well.

TMF: How might the first year of legalization look in Canada?  How might investors’ mentality shift?

Ajamian: The focus will change from production capacity to retail footprint. Ultimately, retail is where the rubber meets the road. It is where new cannabis consumers will discover the product and the brands. In the absence of true retail in Canada, much of the focus from investors has been on cultivation and manufacturing, but companies will be forced to gain customers and their loyalty and that’s a completely different exercise. In markets like California, we already see that. Our stores accounted for six percent of all sales by licensed dispensaries in the second quarter. We outperformed other dispensaries in the state by a factor of three on average. We believe that’s due to the strength of our retail brand.

TMF: What might investors face on October 17, 2018, and during the first year of legal sales?

Ajamian: I think we need to get away from looking at how marijuana stocks are doing on any given day and focus on the long-term. We are building an industry, a real industry with real factories, stores and consumers. October 17 will be a historic day. It will advance the conversation globally around legalizing cannabis. We should look at the long-term ramifications of that and focus on the fundamentals. This is about finding Google before it was Alphabet or Amazon before it was Amazon. It is not about making a quick buck on what you expect a stock to do on a given day.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A close up image of Canadian $20 Dollar bills
Investing

Canadians: A Top Passive Investment for Big Passive Income

BMO Canadian High Dividend Covered Call ETF (TSX:ZWC) is a top passive-income play for Canadians to buy on recent weakness.

Read more »

Retirement plan
Dividend Stocks

Retirement Planning: Now Is the Time to Buy Dividend Stocks

2022 could be a great time to buy quality dividend stocks at attractive discounts. Prioritize your capital allocation now.

Read more »

Payday ringed on a calendar
Dividend Stocks

How to Convert $500 Monthly Investment Into $200 Monthly Income

If you want the stock market to give you regular monthly income, you have to invest in the stock market…

Read more »

falling red arrow and lifting
Investing

RRSP Investors: 3 Dividend Stocks to Buy on the Dip

Inflation has delayed retirement for Canadians. RRSP investors should buy cheap dividend stocks like Fortis Inc. (TSX:FTS)(NYSE:FTS).

Read more »

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »

worry concern
Dividend Stocks

3 Ultra-Safe Dividend Stocks for Jittery Investors

Motley Fool investors nervous about the market downturn should consider these ultra-safe dividend stocks that keep paying passive income no…

Read more »

Economic Turbulence
Cryptocurrency

The TSX’s 1st Crypto ETF Lost $500 Million in 1 Day

The TSX’s first crypto ETF lost $500 million is one day and is down nearly 58% year to date.

Read more »

House Key And Keychain On Wooden Table
Dividend Stocks

Is the Real Estate Boom Finally at an End?

It might be hard to believe, but Canada’s decades-long housing boom might be at an end.

Read more »