*CORRECTED* Market share trends in Florida (TCNNF, CURLF, GTBIF, CCHWF, LHSIF)
The Florida Office of Medical Marijuana Use (OMMU) releases updated cannabis data every Friday.
Yesterday, the Florida OMMU released corrected sales volume data for the week ending November 5th. The data published last Friday by the OMMU was an erroneous repeat of sales volume data from the week ending October 16th.
For the week ending November 5th, the number of qualified patients in Florida’s medical marijuana program grew 0.3% WoW or 47.1% YTD to 439,838 qualified patients with active ID cards. The state’s medical marijuana program recently passed the 2% milestone in terms of population penetration rate. With the corrected data, Florida posted exceptional sales volume growth. THC in mgs sold increased by 11.9% WoW to 144.9 million mgs, the second-highest amount ever reported in the state. CBD in mgs sold spiked 13.6% WoW to 4.2 million mgs. Flower in oz. sold grew 6.5% WoW to 49,973 oz. sold, a record high.
Trulieve was a beneficiary of this spike in demand, posting its second-highest amount of THC (mgs) sold after hitting a new high just a month ago and achieved a record amount of flower (oz.) sold. On a 4WMA, Trulieve maintains a disproportionate market share, with 50.9% share of mgs THC sold, 39.3% of mgs CBD sold, and 55.3% of oz. in flower sold, at just 22.4% share of dispensing locations.
Florida’s medical marijuana marketplace is still in early stages with strong potential – the state’s medical marijuana program still has a runway for population penetration, edibles were just introduced to the market in August, and there’s a broad range of qualifying medical conditions, notably ‘severe and chronic pain.’ The rising tide that is patient volume growth lifts all ships.
Aurora Cannabis Earnings, BEST IDEA SHORT (ACB)
We are adding ACB to the Best Idealist as a SHORT.
ACB beat topline estimates for Q1 FY21 (ended September 30), reporting net revenues of C$67.8 million versus FactSet Consensus C$63.6 million and their own September guidance of C$60-C$64 million. The company posted a net loss of -C$107.2 million versus FactSet Consensus -C$48.4 million; while the bottom-line miss was significant, it was a marked sequential improvement from the company’s historical loss last quarter of -C$1.88 billion. Sequentially, consumer cannabis revenue fell 3% to C$34.3, despite a growing overall recreational market. Medical cannabis revenues increased 4% to C$33.5 million. ACB sold less cannabis QoQ, dropping -4% to 16,139 kg. Sold. Adjusted gross margin before fair value adjustments fell two percentage points sequentially to 48%. In fiscal Q1, the company raised C$114.3 million through its ATM program.
Management expressed their bearishness on the cannabis beverage market, with CEO Miguel Martin saying that “there is not a significant advantage in being the first-mover,” and “we don't see it as an opportunity today, but if and when it was there, we’d be there.”
The company is scrambling to achieve positive EBITDA by mid-2021, which we do not believe to be possible. ACB is struggling to keep a foothold on the Canadian market, with a cash burn that has averaged C$91 million over the past year and C$72.6 million last quarter. ACB’s balance sheet and cash flow are disastrous, with the company still facing violating a bank covenant by FY year-end.
Tilray Earnings, SHORT Bias (TLRY)
TLRY reported stagnant Q3 revenues of $51.4 million versus FactSet Consensus $54.4 million, missing topline estimates with relatively flat sequential and YoY growth at 2% and 0.6%, respectively. Cannabis segment revenue decreased by 11% YoY due to the discontinuation of bulk sales and a slight decrease in Canada Medical sales. Adult-Use and International Medical sales grew by 26% and 42% YoY, respectively. However, their net loss was at -$2.3 million for the quarter, a sequential improvement from Q2’s -$81.7 million net loss and a beat against FactSet Consensus -$23.5 million, a 90% surprise. The company had an Adjusted EBITDA loss of -$1.5 million, an improvement sequentially of 87% and YoY of 93%. Like ACB, total cannabis kilogram equivalents sold decreased, falling 53% YoY to 5,107 kilograms. Tilray guided to deliver positive, or break-even Adjusted EBITDA in Q4.
We added Tilray to our SHORT bias list yesterday. Like ACB, TLRY can only survive and fund operations with an ATM that is dilutive to shareholders. The company is shifting aggressively to the International medical cannabis markets, with its Portugal (GMP-Certified) facility serving as a production hub. The Portugal facility offers the opportunity for both indoor production space and outdoor grow space of at least 2.4 million square feet each. The total production space is 2.7 million square feet. The company is planning on having its International Medical segment revenues "exceed our revenue in Canada over the course of the next several years." Over the past year, TLRY has improved the cash burn as it has shed or closed several facilities. The combination of stepping back from the Canadian market and focusing on international will create profitability issues for the foreseeable future. While the global market may have better margins, the current Canadian production costs of over $3.40 per gram and declining revenues per unit sold will keep profitability a long way off.
Canopy Growth Earnings, LONG Bias (CGC)
I was surprised at how well CGC sounded on the earnings call. The aspect of the call that resonated with me was its data-driven approach to managing its P&L. As the CEO said on the call: "That being said, for the last several months, we've been in deep, deep analytics on our entire operations and supply chain and have now built a fact-based, data-driven approach to getting traditional CPG level margins." Also, the growing retail presence will strengthen the company's operating performance and improve execution. In the quarter, CGC opened 9 corporate-owned stores in Alberta during Q2 with an additional store opening in October, bringing total corporate-owned stores to 33 as of today. The number of partner stores has also increased to 16 in total, up from 14 in the first quarter.
Canopy Growth reported record quarterly revenues for Q2 FY21 (ended September 30), with net revenues of C$135.3 million versus FactSet Consensus C$116 million, an increase of 23% QoQ and 77% YoY. The topline improvement was driven by increased Canadian recreational revenue, continued strength in vaporizer sales, and contributions from BioSteel. Gross margin of 19% was up 1,400bps YoY and up 1,300bps QoQ. Net loss of -C$96.6 million beat FactSet Consensus -C$132.5 million, improving sequentially from Q1 FY21’s net loss of -C$128 million and YoY from Q2 FY20’s net loss of -$339.2 million. The company strengthened its competitive positioning in the Canadian recreational market, increasing market share to 15.5%, a QoQ improvement of 200bps; market share in the flower category grew by 320bps during Q2 FY21 vs. Q1 FY21. Tweed continued to drive market share gains in the growing value flower segment, as the market share of value flower sold in Ontario more than doubled to 13.7%. Canopy’s cash position fell C$254 million to C$1.722 billion from March 31, reflecting EBITDA loss and capital investments.
While we remain somewhat skeptical of the cannabis-infused beverage space, CGC has established a leadership position in the market, with a 54% dollar share with five Ready-to-Drink THC cannabis beverages in Canada. To date, over 2.0 million beverage units have been shipped since late March 2020. The company also added 9 retail stores in Alberta in their second fiscal quarter, bringing the total number of stores under the company’s Tweed and Tokyo Smoke retail banners in Canada to 48 (32 Corporate-owned).
We added Canopy Growth to our LONG Bias list yesterday, having been bearish or SHORT the company since we launched coverage of the industry over two years ago. While there is still a significant amount of pain unfolding in the Canadian cannabis sector, the industry will mature, retail points of distribution are growing, and CGC is positioned to capture significant market share. On the call, the company said, "the pace of retail store openings accelerated in key provincial markets, especially Ontario, contributing to increased sell-in during the quarter, and total active store count nationwide grew by 185 stores in Q2, with Ontario seeing 46 additional stores open, bringing the total to 147 at quarter-end. And looking ahead, we expect more store openings to continue to have a positive impact on industry sales, and we now expect there will be over 1,250 stores in Canada and over 240 stores in Ontario by the end of this calendar year. This is a bit of good news for the industry overall.
Unfortunately, CGC is saddled with the burden of unprofitable a low-quality US MSO. One day, CGC and the broader Canadian cannabis market will turn the corner – it's just a question of timing.
