Canadian Adult-Use Market Sees Slowing Growth - Grow Life 420

Canadian Adult-Use Market Sees Slowing Growth

October 31, 2022

#KahliBuds #MMJ #CBD #THC

The Canadian adult-use cannabis market is growing more slowly than it had in the past, according to a new report from Cantor Fitzgerald analyst Pablo Zuanic.

While the market saw third-quarter growth of 13% year-over-year, that rate was down from the second quarter’s growth of 23%. Still, it is performing better than the U.S. where sales have been mostly flat. Sales per capita are higher in the U.S. versus Canada, however.

“Hifyre data indicates that sales in Canada are marginally up sequentially after reversing the negative sequential growth trend for the first time back in 1Q22,” Cantor wrote. “Cannabis sales in Canada for 3Q22 totaled $1.16 billion, the highest quarterly sales to date, and sequentially were up 3% compared to 2Q22 sales of $1.12 billion.”

Flower Sales

Zuanic also said he believes the race to the bottom on pricing seems to be done. He thinks companies realized that was an unsustainable race to run.

“Although flower prices continue to drop, they are doing so at a decreased pace suggesting they are close to stabilizing. The average quarterly price decrease through the first three quarters in 2022 is 3.4%, compared to 5.8% in CY21 (calendar year 2021), and 8.1% in CY20 (calendar year 2020),” he wrote in his report. He also said that the companies that are growing market share tend to sell products with prices above the market average (a sign price discounting is no longer the way to share and that quality matters).

While flower continues to be the leading product category, it is losing its market share to other smaller categories. Flower sales were down 3% sequentially, while Cantor said pre-rolls (31% market share) were up 16% (2021: 29% market share; -3%); vapes (14%) were up 4% (7% market share; +3%); edibles (6%) were down 1% (11% market share; +4%); concentrates (4%) were down 1% (4% market share; +4%); oils (3%) were down 7% (4% market share; -1%); beverages (2%) were up +4% (19% market share; +5%); and topicals (0.4%) were down 7% (5% market share; -21%).

Market Share

Zuanic wrote that, based on the current company structure, the leading licensed producers based on share of dollar sales are:

  • Tilray, 8.2% in 3Q22 (15.0% in 3Q21). Cantor said Tilray sales were up 3% in the third quarter.
  • Organigram, 8.2% (7.3%). Cantor said sales were up 4% in the third quarter.
  • Hexo (now part of Tilray), 8.2% (12.1%). Cantor said sales were down 9% in the third quarter.
  • Village Farms, 6.3% (6.9%). Cantor said Pure Sunfarms sales were up 7% in the third quarter.
  • Canopy Growth, 5.8% (10.0%). Cantor said sales were down 11% in the third quarter.
  • Auxly, 4.8% (5.6%). Cantor said sales were down 9% in the third quarter.
  • Decibel Cannabis, 4.5% (2.8%).
  • Cronos, 4.3% (4.2%). Cantor said Tilray sales were up 3% in the third quarter.
  • Bzam Cannabis, 3.1% (1.6%).
  • Valens, 2.7% (1.9%).

Company Color

Cantor dug a little deeper into a handful of companies to give more insight into the third-quarter results.

Canopy Growth

Zuanic wrote that despite Canopy Growth (Nasdaq: CGC) management saying that their domestic market share had stabilized during the June earnings call, Hifyre data demonstrated a 100 bps drop in share from 6.8% in the second quarter to 5.8% in the third quarter.

According to that data, 75% of sales come from legacy Canopy Growth, with the remaining 25% of sales coming from Supreme Cannabis (acquired in June 2021).

“In our view, CGC is too reliant on their value flower brand Tweed to call their flower division premium. Currently the Tweed brand accounts for 46% of category sales, has an average price per gram of C$3.54, and mainly sells in the 28g SKUs size. It also appears that their premium flower brand Doja (15% of flower sales; C$8.47/g) was down 4% seq, this comes after 31% growth in the prior quarter.”

Village Farms – Pure Sunfarms

Cantor had mostly positive comments about Village Farms. The report noted that Hifyre data for the quarter pointed to a VFF sequential sales increase of 7%, with sales totaling C$72.7 million. This comes after +3% sequential growth in 2Q22. Branded products have been driving the growth at VFF, where sales have grown by 30% and bulk (trim and other) up almost 60%.

Zuanic wrote, “It should be noted that Hifyre tends to underestimate VFF growth. Last quarter Hifyre projected +3% growth when the branded division was up 30% as mentioned above.” The company is using the Fraser Valley brand for value consumers, while the Cookies brand will be used for premium consumers.

Aurora Cannabis

Sales at Aurora Cannabis fell 8% in the latest quarter, the ninth consecutive quarter of negative sequential growth according to Hifyre data. Cantor noted that the flower category accounts for more than 50% of company sales, and that dropped 37% sequentially, the main reason for the decline. It just seemed to be bad news across the board for Aurora. The report stated, “All other categories experienced negative growth QoQ, flower was down 18% (40% of total sales); vapes -10% (16%); edibles -29% (8%); oils -38% (2%).”

Auxly Cannabis Group

Cantor admits that using Hifyre data for Auxly could be problematic when assessing the third quarter. The Hifyre scanner data suggested sales in the third quarter could fall 6% sequentially and 4% annually to C$55.6 million. However, it was way off in the second quarter for this company, projecting -12% sequential growth when in fact sales increased by 21%.

The company reported that its June quarter sales growth was mainly driven by flower and pre-rolls, which were up 33%, and 2.0 derivative products up 13% on a sequential basis.

The report said, “Auxly’s portfolio sales are uniquely driven by 2.0 products, specifically vapes accounting for 40% of total sales (-13% seq) and edibles which account for 6% of total sales (-5% seq).”

The post Canadian Adult-Use Market Sees Slowing Growth appeared first on Green Market Report.



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Debra Borchardt, KahliBuds, 420GrowLife

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