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AS THE NOISE FADES, OPPORTUNITY ARISES Nawan Butt is a Portfolio Manager at Purpose Investments where he and his team manage the Purpose Marijuana Opportunities Fund, an Exchange Traded Fund made up of several publicallytraded cannabis companies and the first of its kind in Canada. The following article examines current trends in the Canadian cannabis market and abroad.

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s the world resets growth expectations, the secular growth story of cannabis remains in the background, largely untold. Over the past couple of years, investors have been working diligently through a price-discovery phase for the newly legalized and regulated sector. This has meant testing the limits of success and overcoming multiple hurdles that come with the development of a new sector. Excessive valuations and rapid drawdowns have kept the sector associated with volatility and speculation. After steep drawdowns in March, the market staged a strong recovery in April with cannabis companies on the upswing. The cannabis industry continues to face headwinds along with the broader economy but there are silver linings of regulation and green shoots of innovation that aim to make the best of a bad situation. As regulators on either side of the 49th show support of the industry, operators have found this as the right time to strengthen and innovate their business models. The silver lining of this pandemic has been the importance placed upon the availability of medical cannabis to patients. Throughout Canada and in at least 28 US states, medical cannabis has been deemed an essential service, showing solid support from regulators for the definitive future of the medical cannabis industry. This validation has defined what we believe to be the valuation floor for medical cannabis. The support of regulatory bodies in providing access to patients is the affirmation investors have been awaiting to finally start believing the secular story again. Canadian Licenced Producers (LPs) have gone through a major shake-up in recent months and a much-expected wave of bankruptcies and consolidation is now taking place. We find positive signs in this as winners separate from losers, consolidate market share and create efficiency with scale and distribution. Recently, LPs have used COVID-19 as an excuse to downsize production and implement ‘temporary’ layoffs; however, we view this as a ‘right-sizing’ for the industry and ultimately a net positive as production moves down towards actual industry demand. Furthermore, as the industry faces hurdles with the slowdown of additional retail locations opening in key locations, there are multiple innovations that have been expedited through this period. We have seen the implementation of click-and-collect and delivery as distribution models evolve in Ontario. These distribution models should be key to displace former black market strongholds and ultimately have a positive effect on legal cannabis penetration rates in Canada. Investors now recognize this improving environment and this is evident 10

Cannabis Prospect Magazine | June 2020

Profile for Cannabis Prospect Magazine

Cannabis Prospect Magazine - June '20 - Issue #9  

Cannabis Prospect Magazine is Canada’s premier trade publication for cannabis industry professionals. With six issues to be printed and dist...

Cannabis Prospect Magazine - June '20 - Issue #9  

Cannabis Prospect Magazine is Canada’s premier trade publication for cannabis industry professionals. With six issues to be printed and dist...

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