Small Changes in Canadian Market Share Create Big Impact for Canadian Licensed Producers – Technical420

Over the past year, we’ve consistently covered how broker research analysts have lowered Canadian Licensed Producer (LP) price targets and ratings.

These changes were mainly related to lower sales forecasts, lower profit margins and higher net losses. In the near future, we do not expect any change in the current trend in Canada, as analysts have lowered sales forecasts by hundreds of millions of dollars for Canadian cannabis producers.

Over the past few years, the landscape of the Canadian cannabis industry has changed and the market has become much more competitive. Companies have lowered the prices of cannabis products in an attempt to capture market share and this trend has created several ripples that have negatively impacted some of the biggest Canadian LPs.

According to leading cannabis testing company Hifyre, Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) and Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) were particularly affected by changing market conditions in Canada. For the calendar quarter ended December 31st, Canopy Growth’s market share fell to 8.6% from 10% in the prior quarter. For Aurora Cannabis, its market share fell to 2.8% from 3.7% in the previous quarter.

Small changes in market share create major ripples

For an industry that generates billions in revenue per year, a small change in market share will have a significant impact on any business. When it comes to Canopy Growth and Aurora Cannabis, the market has punished stocks and we wouldn’t be surprised to see additional changes in the management team if the trend didn’t change this year.

While Canopy Growth and Aurora Cannabis lost market share, smaller Canadian LPs benefited and several companies we cover reported significant increases in market share quarter over quarter. Six measures that caught our attention are:

  1. The latest consensus revenue estimate for Canopy Growth is c. C$200 million less than previous forecast
  2. For Aurora Cannabis, analysts expect fiscal 2022 revenue to be c. C$250 million, which is significantly lower than CIBC’s 2022 estimate of C$435 million (released September 2020)
  3. According to Hifyre, the market share of Auxly Cannabis Group (TSX: XLY) (OTC: CBWTF) has increased to approx. 7.4% in the fourth calendar quarter of 2021 compared to around 4% in April
  4. The data analytics company also reported that Organigram Holdings (TSX: OGI) (Nasdaq: OGI) market share was 7.6% in the fourth calendar quarter of 2021, which is well above the 5% figure that was reported in April.
  5. ATB Financial said it expects Auxly to generate more than C$150 million in revenue in fiscal 2022, which is higher than the previous estimate of ca. 100 million Canadian dollars
  6. Cantor Fitzgerald raised his revenue forecast for Organigram to C$142 million in fiscal 2022, higher than the previous estimate of c. 120 million Canadian dollars

Over the past year, the Canadian cannabis sector has come under considerable pressure and we continue to have a cautiously optimistic outlook on it. We believe selectivity is key when it comes to Canadian LPs and our readers should be aware of which companies are expected to grow and which are expected to decline.

If you would like to learn more about the changing landscape of the Canadian cannabis industry, please email [email protected] with the topic “Which companies are best positioned to capitalize on the Canadian cannabis market” to add to our mailing list.

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Written by

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to market to leading companies in the cannabis industry in the United States and abroad.

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