My Most Comprehensive Cannabis Update Yet (Part 1)

Yes, it’s me writing about Canadian cannabis again! Since I started investing in the sector meaningfully earlier this year, I did a TON of research, and I’m excited to share my most comprehensive update on the industry so far. In Part 1, I’ll cover some high-level highlights and trends I’m monitoring. In the upcoming Part 2, we’ll dive into specific companies.

Spoiler Alert: I am incredibly excited about how this thesis is progressing, and I believe we are still in the early innings here.

I’ve chosen to focus exclusively on the Canadian cannabis market because the regulations are clear (i.e., it’s federally legal) and stock prices are now predominantly driven by the fundamentals. This is a significant change from 5-8 years ago, when narratives largely drove prices. I believe the US market is also highly narrative-driven, given the possibility of federal rescheduling.

In the Canadian cannabis market, I’ve identified over 20 publicly traded licensed producers (LPs) or retailers. I interviewed the management teams of about 10 of them and travelled across the country to visit 5 facilities in person, as well as several retail stores.

Visiting Cannara Biotech (left) and Nextleaf Solutions with CEO Emma Andrews (right)

In the last month alone, I attended two microcap conferences (Smallcap Discoveries and Planet MicroCap) and a cannabis industry conference (CanExec Summit), which enabled me to catch up with the executives of many public and private companies.

I think that puts me in a good position to understand key trends in the sector and position my portfolio accordingly.

Catching up with Rubicon Organics’ VP of sales and VP of marketing at the CanExec Summit

Lastly, I put my money where my mouth is. The fund I manage, the Rivemont MicroCap Fund, holds about 30-35% of its portfolio in the Canadian cannabis sector. This is a very high-conviction bet for me.

I won’t rehash what the high-level thesis is because I’ve written and spoken extensively about it before. If you’re unfamiliar, you can get started with a post I wrote in February or listen to my latest podcast with Bobby Kraft:

Now let’s dive in and look at four key themes that are top of mind right now.

Key Theme #1: International Exports

This is probably THE key theme to monitor in Canadian cannabis.

Why is it important? Because it’s one of the key factors that led to the rebalancing of the supply/demand equation in our domestic market (the other is the dozens of bankruptcies over the last few years).

There are currently four primary international markets that have legalized medical cannabis use and that import significant quantities from our Canadian producers: Germany, Australia, Israel, and the United Kingdom (there are a few more that are less significant). In 2024, Canada exported over $400 million of medical cannabis products, and this figure is on track to surpass $500 million in 2025, according to a recent Globe and Mail article.

The robust export market has been a boon for the industry because it’s been highly lucrative for exporters and has reduced competition in the domestic market, leading to market share gains and slightly higher prices for those that focus here.

As of now, there doesn’t seem to be any signs of slowing down in international markets, which should provide a continued tailwind for LPs. However, I think we have to carefully monitor these markets for signs of oversupply, pricing pressures, or regulatory changes (more on that below).

At the recent CanExec Summit, the comments were almost unanimous: yes, international is a great opportunity and it is highly profitable, but competition will catch up in these markets too. Not only will these countries likely establish domestic cultivation capabilities over time, but I’ve also been hearing that supply from low-cost jurisdictions like Thailand, Colombia, and South Africa is rapidly improving in quality.

Ultimately, suppose dried flowers become commoditized in international markets. In that case, pursuing a branded approach makes a lot more sense to preserve pricing power (as Rubicon Organics (TSX-V: ROMJ) and MTL Cannabis (CSE: MTLC) are seeking, for example).

Apparently, Canadian cannabis is highly regarded worldwide for its quality. I can envision a day when strong Canadian brands can command a premium in international markets, not too dissimilar from buying expensive wines from prolific regions in Italy or France.

Lastly, another risk to monitor is a recent proposed amendment to the Medical Cannabis Act in Germany that could curb the use of telemedicine to access medical cannabis. If the bill is approved, it could have a short-term impact on cannabis consumption and thus Canadian cannabis demand.

To counterbalance the risk of oversupply or regulatory changes in international markets, we should keep in mind that more countries will likely legalize medical cannabis and eventually open up to Canadian exports. According to the previous Globe and Mail article, there are ‘‘emerging opportunities in Spain, France, Czechia, Turkey, Ukraine and Slovenia.’’

All in all, I am cautiously optimistic that international markets will continue to soak up excess supply from the Canadian domestic market for the foreseeable future.

Key Theme #2: Capital Availability is Improving

I compiled statistics on 20 publicly traded Canadian cannabis companies that I follow.

First, in terms of share price performance, the group returned an average of 15.4% YTD, which is only a couple of percentage points shy of the S&P 500 with its sexy AI names. Not bad if you ask me!

You probably won’t be surprised to learn that a handful of smaller, profitable LPs led the group’s performance. Four stocks are up more than 80% YTD: Auxly Cannabis Group (TSX: XLY), Cannara Biotech (TSX-V: LOVE), Decibel Cannabis (TSX-V: DB) and MTL Cannabis (CSE: MTLC). However, the returns have been all over the place, with 5 names declining by more than 30%.

In total, only 9 out of the 20 stocks have posted positive returns this year, highlighting the importance of stock picking in the sector.

Another important metric I’ve looked at was the change in trading volume so far this year versus last year (2025 YTD vs 2024 YTD). On average, the group’s trading volume improved 57% year-over-year, with three companies posting increases of 250% or more (Rubicon Organics (TSX-V: ROMJ), Simply Solventless Concentrates (TSX-V: HASH), and Glow Lifetech (CSE: GLOW)). 13 of the 20 stocks saw trading volume improve so far this year.

I believe this data is clear evidence that momentum is building in the sector, which should eventually lead to better access to financing and a lower cost of capital.

Speaking of access to capital, we’ve seen lenders get a bit more active in the sector recently. Some notable transactions included:

• Cannara Biotech (TSX-V: LOVE) announced a debt extension with BMO, followed by a 50 bps reduction in interest rate to less than 6%, and finally an upsized $10 million credit facility for capital expenditures.

• Auxly Cannabis Group (TSX: XLY) announced an extension to its credit facility with BMO, including improved and more flexible covenants.

• MTL Cannabis (CSE: MTLC) significantly improved its balance with a brand new $27 million credit facility with TD Bank.

• Late last year, Rubicon Organics (TSX-V: ROMJ) secured a $10 million credit facility with Community Savings Credit Union at a market-leading interest rate of 6.75%.

If the future of this industry unfolds like most capital cycles, I believe we’ll see an acceleration of M&A and consolidation in the coming years, leading to an oligopoly market structure. At that point, I would expect the remaining players to exert pricing discipline, leading to increased profitability for all.

Obviously, M&A and consolidation will require capital, which is why I try to gauge the improvements in capital availability. Any smart investment banker reading this should pay attention… 😊

Key Theme #3: BC Liquor Distribution Branch (BCLDB) Strike

In case you missed it, a story has been unfolding since the start of September in British Columbia, the 4th-largest cannabis provincial market in Canada.

On September 2, the BC General Employees’ Union (BCGEU) initiated a strike at the provincial Liquor Distribution Branch that later expanded to include the cannabis warehouse on September 22. Essentially, the strike severely disrupted the delivery of alcohol and cannabis as well as numerous government ministries and agencies across the province.

The strike lasted almost two months before the parties reached a tentative agreement earlier this week. This article provides a good summary of the situation: BC resuming cannabis operations following tentative end to strike.

In the last few weeks, I’ve seen pictures of cannabis stores with empty shelves as they could not order any new inventory from the provincial distributor. Some stores even decided to temporarily shut their doors due to the lack of product availability.

The strike affected all the LPs that sell into the province, except the very small ones that could use the Direct Delivery program (I won’t get into that). The strike started at the end of calendar Q3, so I expect a modest negative impact in the upcoming Q3 financial results, and perhaps another modest impact in Q4, as the strike was ongoing for most of October. While there may be some catching up over the remainder of the quarter to replenish all store inventories, I expect some demand will be permanently lost, either because consumers forwent purchases due to lack of availability or turned to the illicit market during the strike.

The strike is now tentatively over and warehouse operations have resumed, which is great news! It doesn’t change the long-term cannabis thesis at all, in my opinion, but I felt it was important to highlight this dynamic and be mindful of it when looking at the upcoming quarterly results.

Key Theme #4: SKU Rationalization at the Provincial Level

The last key theme I want to touch on briefly is a topic that came up many times in my discussions with company executives: SKU rationalization.

I’ll oversimplify a little bit, but here’s the typical flow of a cannabis product in Canada:

Licensed producer -> Provincial distributor (government) -> Retailer -> Consumer

In the early days of the industry, provincial distributors listed and carried many products that retailers could then purchase and sell in their stores. Recently, I’ve been hearing more and more about provincial distributors reducing the number of products they carry. Provincial distributors are essentially trying to carry the products from their more consistent and reliable suppliers. Additionally, retailers want to carry the products with the highest market velocity on their shelves. Apparently, the days of listing any product are gone. I’m sure there are many nuances to the statements I just made, but I think this is directionally accurate.

This dynamic has two main benefits, in my view:

1. It creates a higher barrier for any new entrants (i.e., a moat for existing LPs)

2. It should favour the LPs that have been focused on serving the Canadian market (i.e., the most reliable and consistent suppliers) at the detriment of those that have pursued opportunistic international opportunities (i.e., being unreliable suppliers in the Canadian market).

In today’s market, I believe that having fewer, but high-performing SKUs and delivering them consistently and on time is the key to winning. And it has definitely shown up in the financial results of some smaller, more focused LPs compared to big brand names like Tilray Brands (TSX: TLRY) or Canopy Growth (TSX: WEED).

I’ll touch on that topic a bit more when I discuss some of the individual companies, but I’ll leave it at that for now since this post is already getting too long. If you’ve made it this far, I hope this first part was informative.

Let’s continue this discussion in a couple of weeks with an overview of some of my favourite investment ideas.

Stay tuned for Part 2!

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Disclaimer

This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund holds shares of Cannara Biotech (TSX-V: LOVE), Rubicon Organics (TSX-V: ROMJ), Auxly Cannabis Group (TSX: XLY), Decibel Cannabis (TSX-V: DB), and MTL Cannabis (CSE: MTLC). Always do your own research and consult a professional before making investment decisions.