Shopify builds contracts to get piece of ‘upside’ on weed sales, COO says
TORONTO Shopify Inc. has structured contracts with major players in the cannabis industry to “capture the upside” of the nascent legal drug industry in Canada, according to the company ’s chief operating officer, Harley Finkelstein.
Finkelstein made the comment Thursday morning on Shopify’s quarterly earnings call with analysts. “We won’t comment on specific merchants — as we never do — but we will say that in terms of the revenue from them, we have built the contracts to capture the upside of GMV from these provinces and from these private providers,” Finkelstein said.
GMV refers to Gross Merchandise Volume, the measure of the total value of all products sold through the Ottawa-based ecommerce giant’s platform, and one of the key metrics that Shopify reports quarterly.
The company has positioned itself as a significant player in the Canadian cannabis world, managing online cannabis sales for Ontario, B.C., Newfoundland and Labrador and P.E.I. as well as some of the biggest licensed producers including Canopy Growth and Aurora.
As part of the effort, Shopify has set up special infrastructure, including servers located in Canada, to make sure that customer data never leaves the country in order to allay privacy concerns specific to the cannabis industry.
The bulk of Shopify’s business involves a suite of services for ecommerce, including payments, marketing, shipping, and customer engagement tools to simplify the process of running an online store for small merchants. But the company also has the Shopify Plus program, which is geared toward larger merchants with special services, and that’s where the pot players would fit in.
Finkelstein suggested that not all Plus contracts are exactly the same, and that the company is moving toward a contract structure where Shopify receives a share of the sales volume from those big customers instead of just a subscription fee.
In a note to investors on the day after legalization, DA Davidson analyst Tom Forte noted that investors are treating Shopify shares a bit like cannabis stock.
“Shopify even has a section on the website dedicated to helping cannabis stores sell on the platform,” Forte wrote. “We think this accounted for some of the run up in shares in September along with cannabis specific stocks.”
Overall, Shopify reported third quarter revenue of US$270.1 million, a 58-per-cent increase year over year.
GMV for the quarter was $10 billion, up 55 per cent over the same period last year, and the company posted an adjusted operating loss of $3.6 million, or 1.3 per cent of revenue, which was a small increase from $1.7 million, or one per cent of revenue in the third quarter of 2017.
Financial Post