Five predictions for 2021
Published on January 8, 2021 by David Wylie
What does 2021 have in store for the cannabis industry?
Two analysts with Desjardins financial services co-authored a 16-page report with their outlook on the year.
Here are five key takeaways:
1. Prices and quality will continue to improve. Cannabis producers have been successfully working out the kinks and fewer stale and dated products will be on store shelves with big LPs shuttering excess capacity.
2. Consumers are trending toward two opposite ends of the spectrum: value and super premium. The market has exploded with value-priced products to meet increased consumer demand. That creates opportunity for those offering super premium products to be in a strong competitive position due to less competition.
3. Cannabis 2.0 products will gain more traction. Record sales of the newer product category still reflects a modest 2.0 portfolio. Soft chews are the top consumed edible format in mature US states, representing more than 45% of total edibles sales. Increasing variety could become meaningful drivers of sales growth going forward.
4. Legal cannabis sales will continue to rise – the report predicts they’ll increase 40% compared to estimated 2020 levels as more brick and mortar stores are added, prices decline, quality improves, and more 2.0 products are sold.
5. The US is poised for massive growth, especially after the Georgia Senate runoff elections flipped the Republican-controlled Senate to the Democrats. That clears the way for the passage of significant cannabis legislation, particularly the MORE Act. Meanwhile, many more states are considering legalizing recreational cannabis, including New York. And President-elect Joe Biden has signaled federal changes to come.
The report also predicts three promising stock picks.
The Valens Company was predicted to be the most sure bet in the sector.
“Valens appears best positioned to take advantage of continued 2.0 market growth,” says the report, calling the company the lowest risk.
The company recently opened a second manufacturing facility in Kelowna and has been on a hiring spree. It creates white-label products for a variety of brands, including Verse, Iconic Brewing and BRNT.
The company has six of its vapes ranked in the top-15-selling vape brands in Alberta, four of the top 20 vape brands in Ontario and three of the top 10 vape brands in BC.
Valens’ expertise is in Cannabis 2.0 white label/custom manufactured products – which represented 83% of total sales in in the summer, up from 55% in the spring.
“The company has 56 SKUs it is working on (up from 36 last quarter and nine in 1Q) and intends to focus on ramping up its current product portfolio for the near term at least,” says the report. “With our expectations that industry sales can reach C$3.5b in 2021, Cannabis 2.0 products should also represent a growing piece of that pie, which bodes well for Valens and other third-party manufacturers.
As for the other two picks,
Rubicon Organic, which has the most momentum coming into 2021 as the best-performing Canadian cannabis stock last year, up 101.1%. The company focuses on super premium and organic, and has limited competition.
And, Neptune is well positioned for opportunities in the US. Desjardins says the company has “an impressive list” of consumer goods packaging partners, and it has established one of the best US distribution networks.