David George-Cosh

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Sales forecasts for some of Canada’s biggest cannabis producers were revised lower by one analyst as the pace of sales growth in Canada’s cannabis industry continues to slow down.

Cowen & Co. Analyst Vivien Azer said in a report to clients Tuesday that the 21 per cent growth in industry sales observed in the second quarter of this year declined two percentage points compared to the same quarter a year earlier. That’s seen as a slight improvement from slowdowns in prior quarters and offers a potential sign of stabilization in the Canadian cannabis market despite the hyper-competitive state the industry operates in.

Canadian cannabis sales totalled $1.1 billion in the second quarter of the year, compared to $916 million a year earlier, according to Statistics Canada. It was also up eight per cent from $1.03 billion in the first quarter of 2022, the StatsCan data showed.

However, Azer noted that the Canadian cannabis marketplace remains “highly competitive and fragmented” with the country’s biggest producers Tilray Brands Inc., Canopy Growth Corp., and Hexo Corp. poised to report double-digit sales declines in the second quarter and have lost a total of 25 percentage points of market share, according to analysis done by Cowen. Azer said those trends contrast with market share gains for Organigram Holdings Inc. – whose focus on the “value” segment has seen it jump ahead of Canopy for third place in the Canadian market – as well as Auxly Cannabis Inc., which has focused mainly on Cannabis 2.0 products like vapes and extracts.

As a result of the broader industry trends, Azer trimmed her 12-month price target on Canopy’s stock to $3.40 per share from $6.50 amid lower sales projections in Canada’s recreational market, as well as softer-than-expected revenue from its Storz & Bickel vaporizer line and BioSteel sports beverage business. Azer also pushed her expectation for when Canopy will report positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) beyond fiscal 2025 – a year later than what the company management has forecasted - and cut her 2023 revenue expectations nearly 14 per cent to $465 million.

Azer also trimmed her price target on Cronos Group Inc.’s stock to $4.30 from $4.50 per share, and raised her 2023 revenue estimate two per cent to $113 million amid steady international medical cannabis sales  in Israel. She also raised her price target on Aurora Cannabis Inc. to $2 per share from $1.85 on a belief the company may benefit from higher margins from its medical cannabis business, which would offset ongoing declines in sales from its Canadian recreational business.

Lastly, Azer pointed out that early sales projections via industry data tracker Hifyre are “encouraging”, as Tilray’s market share declines may be short lived in June. Tilray’s quarterly Canadian cannabis revenue is still expected to fall roughly 14 per cent, and its German pharmaceutical distribution business may see flat growth, but that could be offset by ongoing cost savings and income derived from its strategic partnership with Hexo, Azer said.