I see CAN being taken over at $7.5 by Aurora, page-30

What's the vision in 7 -10 years?

I am of the opinion that recreation marijuana will be legalised in 4-8 years. Recreational marijuana will dwarf medical cannabis within 10 year (or not, explained below)
The current small companies will not survive after both Cann group and Auscan create large facilities. Cann and Auscan will be low cost producers and the capital requirements for entry (even for small companies like mmj importing) will be way to high to be competitors.

Cann Group will announce a “stage 4 facility” in around 4-6 years to prepare for the incoming Australian recreational legalisation and based on the my idea of the increase in production capacity, my optimistic guess is revenue of $2 billion and NPAT of $1 billion. (The assumption is that they make a facility with 80,000 square meters of flower area).

A NPAT of $1 billion would have the company at a market cap of $20 billion and the dividend would be around $100 million. This would mean holding from todays price, the dividend would be around 100% of the purchase price (if the next facility doesn’t require a capital raise).

Although cannabis is be a commodity product, I believe it will be similar to cereal products where competitors will be able to maintain health margins over the long term contrary to the theory of perfect competition. It won’t be economical for importers as the costs of shipping, and mainly the boarder control costs will be too high to offer competing prices to the home grown Cann/Auscan products.

It is stated online somewhere that Australia is a heavy cannabis smoking country. I haven’t done a cost/benefit analysis for the government with the trade off of cannabis taxes and revenues from fines but one would think that taxes would be more beneficial as the police could cool it on cannabis consumers and cannabis busts, while earning low investment revenue from cannnabis taxes and licencing.

There will be an awkward period when cannabis sales become large scale where high quality illegal cannabis will be much cheaper than high quality legal cannabis, but over time as the scale of economics increases, the government costs for licencing and strict regulatory control on producers will ease making it more advantageous and price competitive between illegal and legal cannabis.

Where is rec? Where is MC?

Note: this paragraph isn’t really important.
Well, the number of recreational users vast out weights the medical users, although if the incentives are alight correctly, many recreational users will buy as medical users.
Ill explain, if the barriers to get a medical cannabis users licence becomes very easy, and there is a significant discount to purchasing medical cannabis, recreational users will purchase under the guise of medical users to obtain a short/medium term financial gain. (If medical cannabis is $10 and recreational is $15, and its easy to get a medical licence, why not get the medical licence to obtain the $5 discount).

From the Canadian Deloitte report, around 7% of males and 6% of females use cannabis daily. Lets project the Australian population is 30 million and lets discount the combined 13% to say 3.3% of the population are daily users, and they smoke an average 1 gram a day.
Thats 1 million people smoking a combined 1 tonne a day. At that rate, Cann and Auscan could both manage that demand, but at at price of $9/gram, that is a total of $3.28 billion in revenue per year from just daily users. Pretty nifty returns tucked away there.

How many people use CBD or something from Cannabis on a regular basis?

I haven’t really researched the what people will be using the cannabis medically as a shareholder, the question I was looking at were they going to consume it.


Thoughts?
What is your opinion?