In a recent analyst note, Cantor Fitzgerald's Pablo Zuanic gave an overview of the Canadian recreational cannabis market in the second quarter of 2022, according to data collected by Hifyre, a leading in-shop and online digital toolset for cannabis dispensaries.
“The Canadian recreational market continued to decelerate in 2Q22 in terms of YoY trends, but it should be said that +21% YoY growth is much better than what we are seeing in the US market (we estimate +1% YoY for 2Q22),” Zuanic said. “Sales grew 8% QoQ after a 2% sequential drop in 1Q22. Prices continue to decline, (...) and we see signs of stabilization.”
Zuanic noted that companies gaining share tend to enjoy higher average prices and attributed this to “more discerning consumers and companies realizing the race to the bottom is not sustainable.” He highlighted that pre-rolls are the best-performing product.
In terms of the performance of larger LPs, in 2Q22, Zuanic said only Organigram grew above the market average pace in QoQ terms (+13%), and Auxly was the worst performer (-14%). “We value the performance in Canada rec of Overweight-rated stocks such as VFF and OGI.TO.”
Market Growth for Calendar 2Q22
Cannabis sales in Canada for 2Q22 totaled $1.11Bn, the highest quarterly sales to date (2Q21 $915.8Mn). Sequentially sales were up 8%.
April sales totaled $372Mn, accounting for “the highest individual monthly sales to date, an externality of general market growth and record sales during 4/20,” Zuanic explained.
Ontario continues to lead the country in total cannabis sales, posting quarterly sales of $446Mn (40% of 2Q22 sales), followed by Alberta at $193Mn (17%), British Columbia at $159Mn (14%), and Quebec at $150Mn (13%). In terms of sequential growth (in order of market size), Ontario grew by 8% and Quebec by 13%.
“The trend of “smaller” categories gaining share from flower $ sales has continued in 2Q22, with flower share falling 4pts seq to 41% of total cannabis sales in 2Q22 (52% in 2Q21),” Zuanic said.
In terms of share and sequential growth at the format level, flower sales were flat sequentially in 2Q22 (-4% in 1Q22; -2% in 4Q21); pre-rolls were up 27%, vapes were up 4%; while edibles were up 9%.
Flower Prices
Flower prices continue to decrease in Canada, dropping 3.5% sequentially to an average price of $5.35 per gram. However, companies gaining a share tend to sell products with prices above the market average. Zuanic considered this a sign that price discounting is no longer the way to share, and that quality matters. “Although flower prices continue to drop, they are doing so at a decreased pace suggesting they are close to stabilizing. The avg quarterly price decrease through the first two quarters in 2022 is 3%, compared to 6% in CY21, and 8% in CY20.”
Market Share For Licensed Producers (LP)
Zuanic said that despite M&AS, sales have become more fragmented. “In 2Q22, the top 5 LPs in terms of $ share accounted for 34% of total cannabis sales (48% in 2Q21), and the top 10 accounted for 58% of total cannabis sales (74% in 2Q21).”
Based on current company structure, the leading LPs based on share of dollar sales are:
- Hexo (NASDAQ:HEXO) 9.3% in 2Q22 (13.1% in 2Q21);
- Tilray (NASDAQ:TLRY) 8.2% (16.4%);
- Organigram (NASDAQ:OGI) 8.1% (6.1%);
- Canopy Growth (NASDAQ:CGC) 6.8% (12.8%);
- Village Farms(NASDAQ:VFF) 6% (7.2%);
- Auxly (TSE:XLY) 5.4% (4.9%);
- Cronos (NASDAQ:CRON) 4.3% (3.1%);
- Decibel Cannabis (CVE:DB) 4.3% (3.0%);
- Bzam Cannabis 3.0% (0.6%);
- Valens (NASDAQ:VLNS)(TSE:VLNS) 2.5% (1.4%).
Individual LP Performance
Tilray experienced negative sequential growth for the third consecutive quarter. Sales declined 14% sequentially to $89.5Mn and are down 41% YoY. All TLRY’s individual categories were down on a sequential basis, although the bulk of the negative growth can be attributed to flower (37% of total sales) which was down 19% sequentially, pre-rolls (36%) down 9% sequentially, and vapes (16%) are also down 9% sequentially.
Canopy Growth Corporation experienced relatively flat sequential growth during the June quarter, with sales increasing 1% sequentially to $75.5Mn (down 37% compared to June 2021 quarterly sales of $120.2Mn). Several categories experienced sequential growth for CGC: pre-rolls (36% of sales) grew 21% to $27Mn; oils (6%) grew 12% to $4.2Mn; and beverages (8%) grew 20% to $6.2Mn. CGC premium flower brand Doja (15% of CGC flower sales) seems to be the category's main catalyst for growth, with sales increasing 31% sequentially to $4.6Mn and an average price per gram of $8.71.
Village Farm sales declined 2% sequentially and 1% annually for the June 2022 quarter, with sales totaling $65.9Mn. VFF’s portfolio is heavily dependent on flower sales which were down 4% sequentially and accounted for 71% of the company's sales. VFF’s flower prices decreased 7% sequentially to $4.97 from $5.33 per gram.
Image via El Planteo.
