Using Segmentation to Retain and Attract Different Audiences
Microsoft to Close its Retail Stores · enhanced capabilities of Microsoft products from the...
Transcript of Microsoft to Close its Retail Stores · enhanced capabilities of Microsoft products from the...
Analysts' Ideas of the Week Microsoft to Close its Retail Stores
June 29, 2020
www.researchfrc.com
Page 2
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Technology
Company
Name
Ticker Symbol Current Share
Price:
FRC Fair
Value
Estimate
Date of PR
Microsoft
Corp.
NASDAQ:
MSFT
US$196.33 US$212.08 June 22, 25,
26, 2020
PR Content Announced the permanent closure of physical stores to focus on digital storefronts, which would result in a $450M ($0.05/share) pre-tax charge in the June quarter (Q4FY20), which primarily includes asset write-offs and impairments. Following this, all sales will be made online.
FRC Opinion Neutral – We anticipate MSFT’s decision to take its retail stores virtual will have no meaningful impact on the company’s growth trajectory as the physical stores contribute negligible retail revenue (~2% of MSFT’s total consumer sales). Although the pre-tax charge related to closure is quite large, this will be beneficial to the company in the long term as it can fully focus on online sales strategy through continued investments in digital storefronts while creating a framework for enhancing customer experiences. MSFT estimates it reaches 1.2 billion people every month with its online stores at Microsoft.com, and for Xbox and Windows, combined.
By considering the $450 million pre-tax charge in the
June quarter (Q4 FY20), our diluted EPS for the quarter
comes at $1.28 (previously $1.33 per share), or $5.68
($5.73) for FY 2020. Consequently, our target price for
MSFT has marginally decreased to $212.08 per share
(previously $212.58). We reiterate our buy rating,
maintaining a positive outlook for Microsoft.
Announced a multi-year strategic alliance with Hitachi to accelerate the digital transformation of the manufacturing and logistics industries across Southeast Asia, North America and Japan.
Positive - Hitachi and Microsoft will work in sync to meet the growing demand for predictive maintenance and process automation in remote areas and support enterprises to deal with difficulties arising out of the Covid-19 pandemic. They will also provide a skilling initiative that facilitates businesses to grow their digital capabilities and tap new business opportunities. Hitachi will integrate Lumada, a platform for implementation of digital solutions, and its IoT-ready industrial controllers HX Series, with the Microsoft cloud platform, leveraging
Page 3
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Weekly Mining Commentary The U.S. reported a record high number of new cases of the coronavirus on June 26,
2020. Approximately 36 states in the U.S. are experiencing a rise in new cases. In
addition to the U.S., Iran, Israel, South Korea, China and Singapore are also in the
midst of a second wave.
Azure, Dynamics 365 and Microsoft 365. This will allow new horizons for manufacturing and logistics companies to accelerate digital transformation. In our view, the enhanced capabilities of Microsoft products from the partnership would attract new customers while helping to retain existing ones.
Acquisition of CyberX, a cyber security start-up focused on developing a platform to protect internet-controlled industrial control systems.
Positive - With the CyberX acquisition, Microsoft will
boost its capabilities to secure IOT deployments across
diverse industries. Specifically, CyberX complements the
existing Azure IoT security capabilities across industrial
IoT, Operational Technology and infrastructure scenarios.
Microsoft could also leverage the same technology
internally to enhance visibility and resiliency of its data
centers. Although MSFT has not disclosed the deal
amount, it is rumoured to be around $165 million. The
acquisition will enable Microsoft to offer unified security
across converged IT and industrial networks. Although a
small deal with no meaningful impact on financials, this
will create a positive image about the company with
respect to enhancing security across its key products,
especially in these unprecedented times where most
services are on ‘Work-From-Home’ mode.
Page 4
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Source: https://www.worldometers.info/coronavirus/
Most of major countries, except India, Brazil and Mexico, are past the first wave.
India has only tested 6k per its one million population, while Brazil and Mexico have
tested 14k and 4k, respectively. These are significantly low rates relative to other
countries, such as the U.S. (99k), the U.K (137k), Russia (132k), and Spain (110k). As
the number of tests increase, we expect India, Brazil and Mexico to continue to report a
higher number of new cases.
Page 5
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Source: https://www.worldometers.info/coronavirus/
European countries have so far done a better job in bringing the virus under
control. In the table below, note the significant increase in cases, post reopening, in
certain U.S. states.
As a result, over 10 states are now pausing plans to reopen. In addition, two states
(Texas and Florida) are reimposing restrictions on certain sectors (especially bars /
restaurants).
Page 6
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
We believe that most governments will likely start to reimpose restrictions before
any lockdowns, considering the first lockdown’s negative impact on their
economies. That said, China has reinstated a lockdown near Beijing after a surge in
cases. Israel has stated that they will increase restrictions. Argentina has announced it
will reimpose lockdowns starting July 1st. The survey below shows the rising demand for
tighter reopening policies in the U.S.
Page 7
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
As a result of the rising concerns of a second wave, the major stock indices stayed flat
or fell 1% - 2% in the past week. Note that most of them have recouped 85% of the
losses from COVID-19. On average, they are down 11% from pre-COVID levels.
Source: FRC / Various
As for metal prices, gold and silver stayed relatively flat WoW. Among base metals,
copper prices were up 2.6%, while prices of both zinc and nickel dropped after reporting
gains in the previous week.
We believe the rising risk of a pull back in business activities will likely dampen the economic recovery underway.
Page 8
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
The inventory levels of copper declined WoW on the LME and SHFE (Shanghai Futures Exchange), which is a reason why copper prices reported gains in the past week.
Valuations – The valuations of gold producers increased, while that of base metals producers declined in the past week.
Page 9
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Page 10
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Last week, we had revised our outlook on base metal prices from positive to
limited near-term upside. We are maintaining this outlook due to the rising probability
of a pull back in business activities, and because commodity prices have already ran up
significantly in the past few weeks, and are currently at pre-COVID levels.
Page 11
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
We remain bullish on gold in the near-term as the same four factors (presented below) that have been driving prices continue to support higher prices.
Despite our positive outlook on previous metals, we are wary of stock market valuations, as they are currently at record highs, as indicated by the P/E ratios below.
Page 12
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
In the following section, we review companies that announced key developments in the
past week.
Page 13
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Mining / Exploration
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Los Andes
Copper Ltd.
TSXV: LA $0.35 $1.31 June-25-2020
PR Content LA’s major investor, Resource Capital Funds (“RCF”), has agreed to acquire an outstanding NSR on LA’s Vizcachitas project in Chile, currently held by a third party. RCF will pay US$14 million to LA in stages. LA will use US$7 to US$8 million of these funds to purchase the third-party’s NSR.
FRC Opinion Positive – This deal has two positives: a) LA makes a $6 million - $7 million profit
from this transaction; the actual NPV is lower as the payments are made in stages.
b) Reflects RCF’s continued conviction on Vizcachitas.
LA is aiming to complete a Pre- Feasibility Study by the end of Q1-2021. A PEA, completed in 2019, had returned an AT-NPV at 8% of US$0.81 billion at a copper price of US$2.50 / lb.
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Eskay Mining
Corp
TSXV: ESK $0.22 N/A June-22-2020
PR Content Completed a $2.8 million financing, including $2.28 million in flow-through funds and $0.51 million in working capital funds. The company is planning an aggressive exploration program in the coming months, including an airborne electromagnetic survey, ground based induced polarization survey, a property wide gold stream sediment survey, geological and geochemical re-logging of historic drill core, etc.
FRC Opinion Positive – We were pleased with the financing as the company was in a $0.50 million working capital deficit as of February 2020. Eskay’s projects are in the Golden Triangle in B.C., close to the historic Eskay Creek gold-silver mine, Seabridge’s (TSX: SEA) KSM gold-copper project, and Pretium’s (TSX: PVG) Brucejack gold projects. The upcoming programs will likely enable the company to identify drill targets. We will be publishing a detailed update shortly.
Page 14
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Hannan Metals
Ltd.
TSXV: HAN $0.30 $0.57 June-22-2020
PR Content Reported sampling results from five separate outcrops, spread over 400 m in a newly discovered area, located 2 km south of previously reported mineralization, which had returned 3 metres of 2.5% copper and 22 g/t silver. These results are from Hannan’s new San Martin project in Peru. Highlights of the new results below: ➢ 2.5 metres @ 0.8% copper and 14 g/t
silver ➢ 0.8 metres @ 2.8% copper and 14 g/t
silver ➢ 0.2 metres @ 6.9% copper and 32 g/t
silver
FRC Opinion Positive – The high-grade copper values are encouraging. Management intends to continue sampling to evaluate the full scope of mineralization. HAN’s near-term focus will be on its Peruvian exploration properties. Note that our fair value estimate does not account for any upside from the assets in Peru as they are in very early stages. 100% of our valuation comes from the zinc-lead asset in Ireland, which has an indicated resource of 2.66 million tonnes at 8.8% zinc equivalent (“ZnEq”), and an inferred resource of 1.68 Mt at 8.2% ZnEq.
Page 15
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Avrupa
Minerals Ltd.
TSXV: AVU $0.025 $0.20 June-25-
2020
PR Content Receives a five-year exploration license for its Alvalade copper-zinc project in Portugal. Option partner, MATSA, will commence work immediately, with a goal to resume drilling later this year.
FRC Opinion Positive - We were pleased to see the resumption of work at Alvalade, especially considering that the project has returned attractive results in the past. Lundin Mining’s (TSX: LUN) Neves – Corvo copper-zinc mine is approximately 70 km from Alvalade. MATSA is a 50:50 JV company of two reputable global trading / investment firms, including Mubadala Investment Company (a UAE state-owned holding company) and Trafigura (a global commodity trading company). Note that AVU is the only TSXV listed prospect / project generator exclusively focused on Europe.
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Bayhorse Silver TSXV: BHS $0.08 $0.68 June-23-2020
PR Content Ore-sorting tests resulted in a reduction in ore volume by 90% to 95%. The test produced a five kg sample with a head grade of 985 g/t silver, 1.16% copper and 1.87% zinc. Metallurgical tests showed a recovery of 87% silver.
FRC Opinion Positive – These are very positive results; a key positive of ore-sorting is that the company can mine and process lower grade ore. BHS is continuing metallurgical studies and evaluating the potential of processing concentrates on-site. We will make changes to our model once we have more clarity on the inputs. The project can be quickly put back into production. As announced last week, BHS is planning a drill program (10 holes / 1,500 m) on its second asset - the Brandywine gold-silver project in B.C.
Page 16
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Special Situations
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Siyata Mobile
Inc.
TSXV: SIM $0.10 $1.14 June 26, 2020
June 24, 2020
PR Content
Closed a private placement for gross
proceeds of $1.33 million. The private
placement constitutes a related party
transaction, as the subscriber (Accel
Telecom Ltd.) is an insider of Siyata.
Received purchase orders valued at
$0.63 million for its Uniden UV350 from a
leading distributor (name undisclosed)
that serves US Tier 1 cellular operators.
FRC Opinion
Positive – At the end of 2019, Siyata
reported a cash position of $3.47 million,
working capital of $6.70 million, and a
current ratio of 2.57x. The private placement
further strengthens Siyata’s liquidity
position.
Positive – We are pleased to see Siyata
continually secure purchase orders for its
Uniden UV350. Siyata is scheduled to
report Q1-2020 on June 30th, 2020, to
which we will provide an update report.
Page 17
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Cannabis
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Indiva Limited TSXV: NDVA $0.30 $0.59 June 26, 2020
PR Content
Announced a private placement for up to
$5.10 million. The first tranche of $1.01
million is a related-party transaction
(director participation) and was closed on
June 25, 2020. Proceeds from the private
placement are expected to be used for
equipment purchases, working capital,
and general corporate purposes.
FRC Opinion
Positive – Indiva’s liquidity position has
been a concern for us. At the end of Q1-
2020, Indiva reported a cash position of
$1.06 million, a working capital deficiency of
$6.01 million, and a current ratio of 0.69x.
We are pleased to see Indiva alleviate our
concerns on its liquidity position through the
announcement of a private placement.
Page 18
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
FinCanna
Capital Corp.
CSE: CALI $0.08 $0.29 June 25, 2020
June 23, 2020
PR Content
Announced a two-year extension on
convertible debentures (book value of
$4.34 million) that were due in calendar
Q1-2021. Furthermore, the company
announced plans to raise $2.5 million
through a new convertible debenture
financing. The management team is
expected to subscribe for $0.50 million.
Restructured its royalty agreement with
portfolio company, QVI Inc. FinCanna will
provide an additional US$1.5 million to
QVI in exchange for increasing the
existing tiered royalty rate from 6% - 15%
to a flat rate of 20%, among other term
revisions.
FRC Opinion
Positive – We had expected FinCanna to
restructure its debt. We are pleased to see
management’s involvement in the new debt
financing, as it indicates confidence in the
company.
Positive – QVI is currently in commercial
operations. FinCanna provided funding of
US$3 million to QVI to acquire an average
royalty rate of 10.5% (US$0.29 million per
royalty percentage). The additional funding
to QVI to convert the tired royalty rate into a
flat rate of 20% is favourable for FinCanna,
as they are now paying US$0.23 million per
royalty percentage. FinCanna is expected to
report financials in the coming weeks, to
which we will provide an update report.
Page 19
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
AgraFlora
Organics
International
CSE: AGRA $0.06 $0.38 June 26, 2020
PR Content
Entered into a cultivation partnership with
MicroC45 Inc. for hemp cultivation in
Ontario. The yield of this cultivation
partnership is expected to be 50,000 kg
of CBD hemp for fall 2020.
Announced intentions to complete a non-
brokered private placement for gross
proceeds of up to $2 million.
FRC Opinion
Positive – The CBD hemp is expected to
be processed by MicroC45 Inc. into CBD
isolate and CBD distillate for sale to
consumers in Canada. Although we are not
privy to the financial terms of this
partnership, we believe the partnership is
expected to generate meaningful revenue
for AgraFlora. AgraFlora is scheduled to
report financials in the coming weeks, to
which we will provide an update report.
Positive – At the end of 2019, Agraflora
reported a cash position of $4.08 million, a
working capital deficiency of $3.89 million
and a current ratio of 0.61x. We are pleased
to see the company look to improve its
liquidity position.
Page 20
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
Captiva Verde
Land Corp.
CSE: PWR $0.48 $0.86 June 29, 2020
PR Content
Received a cultivation license from Health
Canada for its outdoor grow site.
According to the company, they are now
authorized to cultivate, propagate, test,
harvest, and sell cannabis flower.
FRC Opinion
Positive – We have independently verified
that Captiva has received its cultivation
license from Health Canada. With the
cultivation license being received on-time,
we believe the risk profile of Captiva has
decreased. We will be revising our valuation
of Captiva in a follow-up note.
Company
Name:
Ticker
Symbol
Current Share
Price:
FRC Fair Value
Estimate:
Date of PR:
CannaOne
Technologies
Inc.
CSE: CNNA $0.15 N/A June 24, 2020
PR Content
Announced plans to broaden the industry
sectors that Bloomkit covers. The
company plans to work with clientele in
the global medicinal mushroom and
ayurvedic market sectors, among others.
FRC Opinion
Neutral – Bloomkit is the company’s
proprietary turnkey suite of online
marketplace services and solutions.
Bloomkit operates in a highly competitive
industry, against well-established players
such as Shopify (TSX: SHOP). It is
uncertain whether Bloomkit will be able to
compete effectively against other players.
According to Oberlo, the top five
ecommerce software platforms hold 65% of
the ecommerce platform market share in the
USA. We expect this percentage to be
similar in other jurisdictions.
Page 21
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Weekly Cannabis Commentary Cannabis Industry Performance
Note: MCAN and XCAN was launched on November 18, 2019 and January 20, 2020, respectively.
Source: TMX Money, FRC
Over the past week, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ / “HMMJ”), the Standard & Poor’s/MX International Cannabis Index (“MCAN”), and the Standard & Poor’s/TSX Cannabis Index (“XCAN”) generated a return of -6%, -4%, and -5%, respectively. This week’s poor performance is attributed to the resurgence of coronavirus cases in the United States, which sparked fears of a second lockdown.
Valuation of Select Canadian LPs
The following shows the average Enterprise Value to Revenue (“EV/R”) of the cannabis
companies that we track.
Page 22
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Average EV/R (October 2019 – June 2020)
Source: S&P Capital IQ, FRC
Source: S&P Capital IQ, FRC
The average EV/R, as of June 29, 2020, is 9.6x – a deterioration from an average EV/R
of 10.7x as of June 22, 2020. The average EV/R, from October 7, 2019 to date, is 12.3x.
As a number of companies are not EBITDA positive, we have refrained from tracking
the average Enterprise Value to EBITDA (“EV/EBITDA”).
This week, we look at cannabis sales in several U.S. states.
Page 23
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Cannabis Sales in the United States
The following shows adult-use cannabis sales in (1) California, (2) Colorado, (3) Nevada,
(4), Oregon and (5) Washington state. These five states, according to our research, are
currently the largest markets for recreational cannabis in the United States.
Taken From: Marijuana Business Daily
To summarize our discussions below, cannabis sales have remained strong in
several states amid the current economic downturn. In states were cannabis
sales declined, we believe it is primarily attributed to the lack of tourism.
California: Adult-use cannabis sales were US$319 million in May 2020, a year-over-
year (“YoY”) improvement of 39%. Although the COVID-19 pandemic has caused a
drag in cannabis sales (February and March showed a YoY improvement of 84% and
78%, respectively), it is encouraging to see cannabis sales in May 2020 be higher on a
month-over-month (“MoM”) basis. California illustrates the resilience of cannabis sales
during an economic downturn.
Colorado: Adult-use cannabis sales were US$113 million in May 2020, a YoY decline
of 1%. According to the Colorado Office of Economic Development and International
Trade (“OEDIT”), tourism is one of the strongest economic drivers of Colorado. With this
Page 24
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
in mind, and noting travel restrictions in the U.S. due to COVID-19, the decline in
cannabis sales in the state of Colorado is to be expected.
Nevada: Adult-use cannabis sales were US$43 million in May 2020, a YoY decline of
24%. According to Marijuana Business Daily, 80% of adult-use cannabis sales in
Nevada takes place in Clark County, where Las Vegas is located. With Las Vegas
essentially shut down due to COVID-19, the decline in cannabis sales in the state of
Nevada is to be expected.
Oregon: Adult-use cannabis sales were US$103 million in May 2020, a YoY
improvement of 58%. Cannabis sales have been steadily rising amid the COVID-19
pandemic. Noting the strong YoY and MoM increase, the state of Oregon illustrates the
resilience of cannabis sales during an economic downturn.
Washington State: Adult-use cannabis sales were US$119 million in May 2020, a
YoY improvement of 30%. Cannabis sales have been steadily rising amid the COVID-
19 pandemic. Again, this illustrates the resilience of cannabis sales during an economic
downturn.
Canadian Retail Cannabis Pricing
Source: Online Provincial Cannabis Stores, FRC
The average retail price per gram decreased 0.62% week-over-week to reach
$11.36. Over the long-term, we continue to reiterate our view that the retail price per
Page 25
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
gram of cannabis will decrease to combat the black market for cannabis. According to
Statistics Canada, the average per gram price of illegal cannabis in Q4-2019 was
$5.73. The following shows the trend in pricing for illegal cannabis:
Illegal Cannabis Pricing
Source: Statistics Canada, FRC
Retail Cannabis Stores
As of June 29, 2020, there are 964 retail cannabis stores across Canada. This is a 1%
increase from a week ago.
Number of Retail Cannabis Stores in Canada
Source: Provincial Websites, FRC
The following shows the number of retail cannabis stores by province/territory:
Page 26
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Source: Provincial Websites, FRC
As shown above, Ontario and Quebec are the two largest underserved provinces for
cannabis, with a population / store of 153k and 202k, respectively. Growth in Canada’s
cannabis market hinges on more retail cannabis store openings in the two
aforementioned provinces.
The below chart shows Canadian retail dried cannabis flower pricing since we began
price coverage.
Canadian Retail Dried Cannabis Flower Pricing
Source: Online Provincial Cannabis Stores, FRC
Page 27
©2020 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst(s) about any companies and industries mentioned. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. Companies mentioned in this report may be covered by FRC under an issuer paid model or be candidates for coverage. FRC or companies with related management, may hold shares in some companies mentioned in this report. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. To subscribe for real-time access to research, visit https://www.researchfrc.com/website/subscribe for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company, industry, and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward-looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.