Investment bank: Canada’s cannabis sales much lower than expected

Canada recreational sales, Investment bank: Canada’s cannabis sales much lower than expected

Just two weeks after Canada legalized cannabis, a leading investment bank is warning investors it is “increasingly clear” recreational marijuana sales this year will come in much lower than expected.

GMP Securities, an independent investment bank that services the cannabis sector, said the first 12 days of the legal market were marred by operational and readiness issues in the country’s largest provinces.

“The extremely limited distribution network in many provinces, fulfillment challenges in Ontario, inventory shortage in Quebec and (licensed producers) coping with limited availability of excise stamps may take several months to be resolved,” GMP Securities analyst Martin Landry wrote in a research report.

“As a result, we have reduced our recreational cannabis sales expectations for 2018 for most companies under coverage.”

Market leader Canopy Growth’s revenue estimate was slashed from 469 million Canadian dollars ($357 million) for fiscal year 2019 to CA$288 million. (Canopy’s fiscal year 2019 started in April.)

Still, GMP maintained its “buy” rating for Ontario-based Canopy, noting its “war chest” of more than CA$5 billion.

When Canada became the first Group of Seven country to legalize recreational cannabis, market observers called the rollout more of a “soft launch” because of the small number of stores, limited product selection and inevitable cannabis shortages.

However some of those problems have been more widespread than expected, according to the report. Some examples include:

  • The Ontario Cannabis Store – for now the only channel of legal sales in the province – still has not shipped all the recreational marijuana products ordered on the first day of sales. The OCS blames high demand and a strike by its exclusive shipper, Canada Post.
  • Quebec “is coping with significant supply issues, raising questions about its strategy to use only six suppliers.” Quebec is so low on cannabis that its government-run physical stores will be closed Mondays-Wednesdays.
  • British Columbia managed to open only one physical store, while dozens more await approval.

The report credits Alberta as “one of the more prepared provinces for the legal market.”

Nearly two dozen privately owned stores in Alberta served customers on opening day, while the province’s government-run online sales channel has fared well.

“Unlike Ontario and Quebec, Alberta’s online store hasn’t seen a persistent decline in the number of SKUs available,” the report noted.

“Products in-stock dipped midway through last week, but some replenishment did occur by the end of the week. This indicates that resupplying is taking place as expected.”

Matt Lamers can be reached at

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