Pot sales lag in February as producers ramp up inventory
The first few months of recreational cannabis may have overwhelmed Canadian pot producers with depleted inventory levels and a rush to grow more legal pot this year, analysts say.
According to recent data from Health Canada, the country’s regulator of legal and medical cannabis, about 15,000 kilograms of recreational pot were sold in the first two months of 2019, a marked decline from October and November when a total of 22,000 kilograms were sold.
BMO Capital Markets’ cannabis analyst Tamy Chen said in a report to clients late Monday that the Health Canada figures affirmed a prior assumption that pot producers “would have notably depleted their accumulated inventory” in the fourth quarter of last year.
“As a result, we anticipate it will take some time for most [licensed producers] to meaningfully replenish finished product inventory due to the challenges of growing quality cannabis at scale and managing various supply chain bottlenecks, particularly packaging,” Chen said.
Health Canada said Canadians bought 6,671 kilograms of cannabis in February, down about nine per cent from the prior month. The total amount of inventory of finished and unfinished dried cannabis held by cultivators, processors, distributors and retailers totalled 144,470 kilograms in February, approximately 21.7 times the amount of total sales in the month. Meanwhile, cannabis sales fell 4.9 per cent in January to $53 million from December, the most recent month that data is available, according to Statistics Canada.
A slew of analysts, including BMO Capital Markets, recently reduced their revenue forecasts for several Canadian cannabis companies including Canopy Growth Corp. (WEED.TO), Tilray Inc. (TLRY.O) and Cronos Group Inc. (CRON.TO) amid concerns that most licensed producers are experiencing softer sales as they ramp up cultivation and supply chain processes.
Eight Capital analyst Graeme Kreindler added in a note to clients on Monday that the cannabis industry’s sluggish growth has also been hindered by a lack of brick-and-mortar locations along with finished inventory shortages, limited product choice, and low levels of consumer education and awareness.
“Moving forward, we do not expect to see significant change in sales volumes in the month of March, due to current market dynamics,” Kreindler said. He added that with Ontario launching legal pot shops earlier this month, sales volumes may experience a slight uptick in the second half of the year.
“Heading into summer, multiple facility expansions are expected to ramp-up significantly, which should help to alleviate supply shortages and support brick-and-mortar infrastructure, as well as enhanced product availability,” he said.
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