In a recent analyst note, Pablo Zuanic from Cantor Fitzgerald offered an update on the performance of Canada’s cannabis Licensed Producers in the August quarter, based on data obtained by the market scanner Hifyre.
“So far in calendar 3Q (Jul/Aug average daily sales), Organigram and VFF’s Pure Sun Farms (sales up 8% and 12%, respectively, vs. market growth of 5%) continue to outperform the Canadian recreational market,” Zuanic said. “There is literally a tie between the Top 3 players, with Hexo HEXO at 8.3% share in the August month, Organigram at 8.2%, and Tilray TLRY at 8.2%.”
Highlights: Sales Growth Trends In Canada
- Based on Hifyre and StatCan data, Zuanic noted that recreational retail sales in Canada are up 21% YTD through August, “ahead of most U.S. states”, although in terms of per capita recreational spending (in the ~$95 range), “Canada lags most U.S. recreational states.”
- Canadian recreational sales fell 1% in Aug MoM after 7% MoM growth in July. Daily average sales in July and August are 5% above 2Q22.
- In terms of the major formats, flower represented 40% of August sales, pre-rolls 31%, vape 14%, edibles 5%, concentrates 4%, oils 3%, drinks 2%.
- Flower sales are down 3%, after 2% seq growth in the second quarter of 2022; pre-rolls are up 19%, after 27% growth in 2Q; vapes are up 7%, after 4% growth in 2Q; and edibles are up 4%, after 9% in 2Q.
“Average flower prices in Canada have dropped from CA$10.14/gram in 2019 to CA$5.14 in August 2022 (US$3.96/gram),” Zuanic said. His model assumes 18% YoY growth for all of 2022 (from +23% in 1Q22 to +14% by 4Q22), despite the slower YoY Aug growth (+15% vs. +22% Jan-Aug).
“We do not see a need to revise our full-year projections,” Zuanic added.
Regarding the major LPs, Organigram is +8% (vs. +13% in calendar 2Q) and Tilray +5% (vs. -3%); PSF +12% (flat).
Organigram: 'Will Not Shy Away From The Value Segment'
OGI recreational retail sales for the August quarter increased to a new high of $97.7 million, up 15% sequentially and 41% annually. OGI “Flower” category accounts for 64% of sales ($62.6 million), followed by pre-roll 17% ($16.3 million), edibles 13% ($13.1 million), vapes 3% ($3.2 million), and concentrates 3% ($2.6 million).
“During the quarter, all of OGI’s main categories increased sales QoQ: flower +9%, pre-roll +19%, edibles +17%, vapes +54%, and concentrates +18%,” Zuanic explained.
Management explained the company “will not shy away from the value segment where there is most volume.”
The company's average price per gram of $4.43 is priced at 14% below the Canadian average price of $5.14. OGI’s value flower brands account for 71% and 17% of flower sales.
Approximately 90% of OGI’s flower sales are derived from larger format packages (72% 7g packs, 17% 28g packs). OGI pre-roll category increased sales by 19% sequentially, partly “influenced by seasonality,” management told Zuanic.
The category “Edibles” has emerged as a significant contributor to sales, growing from more than $1 million in the Aug 2021 qtr to $13.1 million in the Aug 2022 quarter. Management attributed this growth to “the company's unique ability to sell 100mg THC edible products, which successfully navigates Canadian regulations of 10mg as a result of them being classified as ingestible extracts.”
Tilray: Concentrates Up
After three sequential quarters of negative growth, TLRY recreational retail sales for the August quarter increased 11% to $97.9 million, down 37% annually compared to $156.2 million in the August quarter of 2021.
“Flower” remains the largest category, accounting for 41% of sales ($39.8 million), followed by pre-roll 35% ($34.1 million), vapes 14% ($14.1 million), concentrates 5% ($4.9 million), oils 2% ($2.3 million), edibles 2% ($1.7 million), and beverages and topicals over 1%, respectively (over $1 million respectively).
Concentrates accounted for the most sequential growth, increasing sales by 32% QoQ., followed by topicals +26%, flowers +19%, and pre-rolls +7%. “All other categories experienced negative growth,” Zuanic said.
TLRY’s average flower price per gram decreased 10% QoQ from $4.63/g to $4.20/g, currently priced 18% below the Canadian average price of $5.14/g.
“Apart from macro trends, the main reason for price deflation is the category mix of brands,” Zuanic explained.
“Premium flower brand, Broken Cost ($9.33/g), decreased share of its portfolio from 19% in the May quarter to 13% this quarter, and Good Supply ($3.74/g) increased share from 57% in the May quarter to 70%. Large formats (7g+) now account for 70% of flower sales compared to 60% in the prior quarter, and 28g packages accounted for 62% of flower sales (54% in the prior quarter). In terms of strains TLRY, continues to have the most diverse portfolio with 77 unique strains, of which the Top 5 account for 51% of sales,” concluded the analyst.
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