During the last year, we have consistently covered how research analysts at broker-dealers have been lowering price targets and ratings on Canadian Licensed Producers (LPs).
These changes have been primarily related to lowering sales expectations, shirking profit margins, and rising net losses. In the near future, we do not expect any changes to the current trend in Canada as analysts have lowered sales forecasts by hundreds of millions of dollars for Canadian cannabis producers.
In recent years, the landscape of the Canadian cannabis industry has changed and the market has become much more competitive. Companies have been lowering the prices of cannabis products to try to capture market share and this trend has created several ripples that have negatively impacted some of the largest Canadian LPs.
According to leading cannabis analytics firm Hifyre, Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) and Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) have been especially impacted by the change in the market conditions in Canada. For the calendar quarter that ended on 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 Creates Major Ripples
For an industry that generates billions of revenue per year, a small change in market share will have a significant impact on any company. When it comes to Canopy Growth and Aurora Cannabis, the market has punished the stocks and we would not be surprised to see additional changes to the leadership team if the trend does not change this year.
While Canopy Growth and Aurora Cannabis have been losing market share, smaller Canadian LPs have benefited and several companies that we cover have reported significant increases in market share on a quarter-over-quarter basis. Six metrics that caught our attention are:
- The latest consensus revenue estimate for Canopy Growth is approx. C$200 million lower than earlier forecasts
- For Aurora Cannabis, analysts expect fiscal 2022 revenue to be approx. C$250 million which is substantially lower from CIBC’s C$435 million estimate for 2022 (reported in September 2020)
- According to Hifyre, Auxly Cannabis Group (TSX: XLY) (OTC: CBWTF) market share increased to approx. 7.4% in the fourth calendar quarter of 2021 from about 4% in April
- The data analytics firm 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% number that was reported in April
- ATB Financial said it expects Auxly to generate C$150+ million of revenue in fiscal 2022, which is higher than the previous estimate of approx. C$100 million
- Cantor Fitzgerald raised their revenue expectations for Organigram to C$142 million in fiscal 2022, which is higher than the previous estimate of approx. C$120 million
During the last year, the Canadian cannabis sector has been under considerable pressure and we continue to have cautiously optimistic outlook on it. We believe that selectivity is key when it comes to Canadian LPs and our readers should be aware of the companies that are expected to grow and the ones that are expected to shrink.
If you are interested in learning more about the changing landscape of the Canadian cannabis industry, please send an email to firstname.lastname@example.org with the subject “Which Firms are Best Positioned to Capitalize on the Canadian Cannabis Market” to be added to our distribution list.
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