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Disappointing Earnings for Canadian Cannabis Companies

Canada’s largest marijuana producers have bragged for many months about the potential revenue from recreational cannabis once legislation passed. However, they were surprised at the unexpectedly low sales. Many were pointing fingers at the government as well as retail systems. However, many admitted supply issues and trouble obtaining approval for the expansion of their operations.

The huge expectations were announced at the end of September. However, as it turned out, the recreational sales disclosed by many companies were disappointing. Even only a few days after legalization, the amount shipped by the largest pot producers were far less than 1% of what has been forecast by the Canadian government for this quarter.

There are various reasons why this was the case. First, as in the case of Peter Young, master grower, there were crop failures that resulted from the sudden rapid expansion of marijuana and the availability of infrastructure for its cultivation. Besides, not many would know about growing and expanding plantations.

Second, according to Canopy Growth Corporation, the lackluster sales in the provinces were a result of the small purchases in order to check first whether their infrastructure would be able to handle huge supplies. A related issue, according to Alcanna Inc. was the fact that provinces and retailers had to use a different system for assessing supply issues. Alcanna Inc. reported that they received an estimated 40% of the ordered pot and reported a profit of C$3.7 million just 19 days after the legalization. However, it cannot be denied that some big names would already have access to the pot even before the October 17 legalization.

A third reason was that consumers wanted more product, but provincial retailers across the country ran out. Moreover, government-run stores could not keep marijuana on their shelves along with other products, so they had to shut down every week for three days. The current supply in Canada was not enough to meet the high expectations and demands of consumers after legalization.

Fourthly, there were production delays. According to Tilray Inc. and CannTrust Holdings Inc., the delay was caused by the excise tax stamps that had to be affixed to the pot packages due to a federal mandate. The problem is that there is only a single company in Canada that knows how to glue the stamps in the appropriate way. Not only were there production delays – but there were also delivery delays. For instance, Nova Scotia buyers said that they only received 40% of what they had ordered. They also received the shipments late, while the customers complained about the packages not labeled correctly.

Lastly, there were expansion issues on the part of the retailers. As the legalization was rather unprecedented, there were those like Tilray’s Kennedy that regretted delays in the issuance of a federal license for its whole cultivation area. Thus, despite the large facilities, most of it was not operational. The license was not issued right away, so they had limited output of cannabis. Related to this was the numerous delays in terms of licenses as well as distribution and the physical preparation of the retail infrastructure. In fact, people from Tilray admitted that they knew such delays would greatly impact their results. They also admitted that no one was immune to such factors. For many cannabis companies from Tilray, the entire process of getting one’s company approved and issued a license by Health Canada would be lengthy, tedious and a cause of headaches.

There is now the question of how much cannabis each of these licensed marijuana companies has shipped. For Canopy, the numbers reached C$700,000 worth of cannabis products. Canopy has consumers across Canada although it directed it is focused on the provinces where the company opened bricks-and-mortars store. Nonetheless, Ontario was not included on its list.

Aurora has 30% of its market share for Ontario. The company reported sales of C$500,000 for the entire quarter, but this does not include the specific sales of the provincial retailer, Ontario Cannabis Store.

Cronos reported revenue of C$3.76 million this quarter. Cronos considered recreational pot as the quarter’s “major part.”

CannTrust reported a small profit although it did not post a loss compared to the other producers that did. For the record, CannTrust was able to ship C$500,000 worth of pot for the specified quarter. This is exactly what Aurora reported too.

Lastly, Supreme Cannabis Company Inc. reported a surprising zero result for the first week. Tilray reported the same thing too although it is considered the most valuable recreational pot company when it comes to investors and capitalization of the market. Green Organic Dutchman Holdings Ltd. also did not report any sales although it is considered superior to CannTrust according to investors.

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