Anne-Marie Fischer
Early insights reveal out-of-stocks remain elevated in Canada’s first 3 weeks of legalization
An analysis of the e-commerce platforms of Alberta, British Columbia, New Brunswick, and Newfoundland & Labrador, represented approximately 65% of the Canadian population, shows that Canadians are taking full advantage of the products available from their provincial retailers.
The report released by Cowen & Co.’s Vivien Azer focused on the issue of out-of-stock rates as Canada falls deeper into its market shortage following legalization on October 17 while providing an up-to-date profile on the who and what of legal cannabis from Health Canada.
The Out-of-Stock Issue
Out-of-stock levels across suppliers show that the product shortage is nothing to scoff at, as supply fell far short of the demand for Canadians accessing legal cannabis immediately after legalization took effect.
Overall, out-of-stock levels remain flat from the prior week at 57%. For Canopy Growth (NYSE: CGC), out-of-stock rates fell to 54% from 65% in the prior week. Tilray’s (TLRY) out-of-stock rates remained flat. Aphria (APHA), which is still recovering from dips in its inventory levels, continues to see out-of-stock rates climb.
Canopy and Tilray Rate an Outperform
Canopy Growth, which had the second highest number of products offered (169 SKUs), rated an outperform with an C$82 price target.
Tilray’s product SKU data was not able to be obtained because the company doesn’t have supply agreements with three of the four analyzed provinces. Tilray also rated an outperform at a C$172 price target.
Market Leading Products
Azer notes that in the provinces examined, loose leaf cannabis is making up 80% SKUs noting that this is likely due to the unavailability of other products like concentrates on the legal market. High-THC flower, made of 20% THC or higher, and oil-based products measured at 20 mg/ml, are proving to be popular products for both offerings and consumer take up. While the purchase of flower (i.e. bud) is most common, pre-rolls are also proving popular with the out-of-stock levels increasing for these particular products; out-of-stock rates for pre-rolls outweigh those of flower.
With the rise in popularity of CBD, out-of-stocks for these products rose to 100%; CBD-focused and CBD-balanced products were sold out at 67% and 61% respectively.
The report noted that oils and capsules make up only 8% of SKUs on the market with these out-of-stock rates climbing faster than other categories.
Capsules carry the highest out of stock rates 75%, but this data is based on a small sample.
The Price Factor
Azer notes that 70% of flower SKUs are priced at $11, while the data is showing that people are willing to pay more for premium pre-rolls, at the equivalent of $10 per gram. Products in the higher end price range (up to $20/pre-roll) are proving to be bigger sellers than those of a lower price category (as low as $12/pre-roll).
As Canada adjusts through its growing pains, we can expect firms like Cowen & Co. to keep a close eye on the who, what, and how much of Canadian cannabis.
Profile of Canadian Cannabis Users
Azer’s report revealed some interesting statistics from Health Canada about cannabis use amongst Canadians. It’s showing a decline in use among 15-19-year-olds by 7%, while use among 20-24 and 25+ is increasing. At the same time, alcohol use among these latter two groups is decreasing.
Females are trailing men at 11% in reporting instances of cannabis use, in comparison to 18% of men, but that gap is beginning to close as more women turn to cannabis. Interestingly, alcohol use among women is on the increase along with a reported increase in women using cannabis.
More incidences of cannabis use were reported in British Columbia over any province; with Ontario falling slightly under the provincial average, and Quebec reporting the lowest incidences of cannabis use in the country.
