Canadian pot sales expected to slow down in Q1 due to COVID-19 lockdowns

As Canadian cannabis producers emerge from a volatile week of market activity, some dark clouds persist over the industry. 
 
While earnings season has begun in earnest with companies like Canopy Growth Corp. and Supreme Cannabis Inc. reporting an increase in quarterly sales, the next three-month period may be a challenging one for Canada's pot retailers and producers. 
 
Several analyst reports suggest that cannabis sales in January will be down notably from December, while some retailers expect the rest of the first quarter to offer another tough month as COVID-19 lockdowns weigh broadly across the industry. 
 
Stifel-GMP Analyst Andrew Carter said January sales in Alberta are projected to be down 4.1 per cent, with the likes of Canopy, Aphria Inc. and Organigram Holdings Inc. expected to record double-digit declines from December. 
 
Meanwhile, BMO Capital Markets Analyst Tamy Chen expects the sales decline in January to be even steeper. She used data from analytics provider Hifyre to project a January sales decline of 16 per cent. 
 
While January is often a slower month for retailers coming off the busy holiday shopping period, the industry remains in growth mode with dozens of new pot shops opening across the country. However, shopping restrictions tied to COVID-19 lockdowns appear to be leading to a slowdown in sales, with retailers suggesting customers are now opting to shop less frequently but buy larger volumes. A slowdown in sales activity may also spell disaster for some financially-troubled cannabis companies needing a steady stream of revenue to get through the pandemic. 
 
Jennawae McLean, chief executive officer of Kingston, Ont.-based retailer Calyx + Trichomes, said that her store's sales were down five-to-10 per cent in January, while adding delivery services to get her wares to customers eroded some of her profits. 
 
"I'm sure next January will be better in gross sales and profitability," she said in an interview. "I really think that the lockdown took a big chunk and having to pivot [to delivery] was really what depressed sales." 
 
Beena Goldenberg, CEO of Supreme Cannabis, said during an analyst call following the company's second-quarter results that expects the sales decline to be temporary. 
 
"While some of the stores are offering click-and-collect or delivery services, foot traffic has been restricted," Goldenberg said. "Due to these restrictions, we see softened industry demand and expect sales in [the third quarter] to reflect this headwind."

THIS WEEK'S TOP STORIES
Latest pot bubble pops after retail investor frenzy drives 'stonks' to new highs 

It was a wild week for cannabis investors. Pot stocks were the latest shiny object for a throng of retail investors to focus on, pushing shares of cannabis operators on both sides of the border to dizzying heights. But there was a sense of disparity among the gainers. While it might make some sense for some U.S. names to get some attention as cannabis reform appears to be underway from D.C. lawmakers, Canadian names appear to have gotten caught up in the frenzy. Companies like Tilray had some of the more outsized moves, rising as much as 58 per cent in one day before falling back to reality with a 50-per-cent decline on Thursday. Other companies like Sundial Growers, Canopy Growth and Aurora Cannabis also reported similar moves. Other notable gainers included a suite of cannabis-related exchange-traded funds which have largely outpaced the S&P 500 so far this year.     

Aurora shares fall after Q2 results miss analyst expectations 

Shares of Aurora Cannabis were under pressure Friday after the company's second-quarter results missed expectations. The Edmonton-based cannabis producer said it generated $67.7 million in revenue in the quarter, little changed from the prior three-month period. Aurora's Canadian recreational cannabis sales fell 17 per cent from the prior quarter to $28.6 million, while its medical cannabis revenue rose 16 per cent to $38.9 million. Aurora also posted a $292-million net loss in the quarter. The disappointing quarter led two analysts to lower their recommendations on Aurora's stock to a "sell" with MKM Partners' Bill Kirk noting that the company's strategy to move its focus to the premium category "seems like a recipe for consumer/province frustration."    

Supreme Cannabis notches profitable quarter, $18M in Q2 sales

Supreme Cannabis reported second-quarter results on Thursday​, posting a rare profit that gave some analysts hope that it can generate positive free cash flow in its next fiscal quarter. Supreme said its revenue in the second quarter was $18 million, while it booked $3.6 million in adjusted EBITDA. BMO Capital Markets analyst Tamy Chen said in a report to clients that sales of Supreme's premium offerings may suggest that cannabis prices are beginning to stabilize, a sign that the move to value-focused products may have run out of steam. 

Aegis to sell Second Cup for $14M to focus on cannabis retail

The former owner of coffee chain Second Cup is selling the retailer to focus on cannabis stores. Aegis Brands sold Second Cup to Quebec-based Foodtastic for $14 million, drawing the retailer's four-decade-long run as one of Canada's biggest independent coffee shop franchises close to its end. Aegis CEO Steven Pelton said the company will focus on opening more pot shops, or buying stores through an acquisition. Aegis owns and operates the Hemisphere Cannabis retailer with four locations in Ontario and another three yet to be licensed by the provincial regulator.  

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