An early analysis of Canadian adult-use cannabis sales indicates suppliers are finding it tough to keep up with demand.
Data in a new report from Cowen & Co.'s senior analyst Vivien Azer showed modestly positive results for Canopy Growth Corp. (CGG) , but she had less information on Tilray Inc. (TLRY) . Both companies had fewer products on the market than Aurora Cannabis Inc. (ACB) and Aphria Inc. (APHQF) . (Aurora Cannabis is a holding in the Stocks Under $10 portfolio.)
Azer said out-of-stock levels remain elevated at 57%, which was flat from last week. The product count is rising. Azer's team reviewed the e-commerce platforms for the provinces of Alberta, British Columbia, Ontario, New Brunswick and Newfoundland & Labrador. This is approximately 65% of the population. They then aggregated 533 product offerings with 1,149 SKUs (stock keeping units) and said demand remained strong.
Canopy Growth, which is rated outperform by Cowen & Co. with a C$82.00 price target, had the second-highest number of SKUs at 169. The out-of-stock rate fell to 54% from 65% and the company added an additional 16 SKUs this week. Canopy said its supply should catch up in a couple weeks, but Azer believes it will take longer.
The report said it was harder to determine how Tilray was doing because the company didn't have supply agreements with three of the provinces that the team analyzed. Tilray is also rated outperform with a C$172 price target. Tilray's out-of-stock rates are flat.
Azer noted that Aphria's out-of-stock rates have continued to climb and the company has taken longer to fix its inventory levels. Aphria had 78 products available as of Nov. 4, while Aurora Cannabis had 69 products available and Canopy had 58. Organigram Holdings Inc. (OGRMF) had 33 products available, while Cronos Group Inc. (CRON) had 28 products. Tilray had 16 products and Hexo Corp. (HYYDF) had 13.
Flower and pre-rolls (pre-rolled joints) are the biggest sellers, mostly because other forms such as edibles, vapes and beverages aren't for sale yet. Azer said high-potency THC products are big hits. The report said that these sales "represent about 80% of all the SKUs with the five provinces." The loose flower is outselling the pre-rolls.
The dry flower is also priced at the lower end of the market at C$11. The report noted that the products at C$13 were lower in the mix of sales data, demonstrating that customers are looking for lower-priced products. The pre-rolls are a premium-priced product, with 69% of the SKUs pricing above the equivalent of C$10 a gram. The out-of-stock levels for premium-priced pre-rolls were increasing, though. High CBD products have experienced big increases in out-of-stock levels, and Azer said she would be watching to see if the market turns more toward wellness products versus mood-altering products.
Azer noted that capsule products had the highest level of out-of-stock rates, but that it was based on a small sample size. These products tended to be more CBD-focused, or balanced between THC and CBD.
Health Canada recently released its 2017 survey that found big differences among the provinces for consumption. It turns out that cannabis is most popular in British Columbia. Female cannabis consumers still trail men 11% to 18%, but that is changing as more women are giving it a try and enjoying it. The report did note that women spend less than men on cannabis products.
The report also found that students were more likely to have consumed cannabis over the past year, at 37%, versus any other groups. About 31% of the consumers only had a high school degree, while 16% of the consumers had a university degree. The average age for cannabis initiation was 18.
The survey also showed that the black market in the country is well-established, with an estimated value of C$7 billion. About 38% of the people answered that they had consumed a cannabis edible even though those products are technically illegal at this time.