Cannabis companies find it tougher than ever to navigate the market
Some of the biggest cannabis players when legalization took effect 20 months ago have successfully held on to their dominant positions, despite a year of bankruptcies, downsizings, revoked licences, executive firings, mass layoffs and a long market selloff.
Licensed producers such as Aphria Inc. and Aurora Cannabis Inc. have increased their market share during the past few quarters due partly to strong sales of dried flower and cannabis 2.0 products such as edibles and vape pens, while Canopy Growth Corp.’s share has substantially eroded from its peak 18 months ago.
Just a handful of companies or so hold more than 95 per cent of the legal Canadian market, according to company filings, interviews with cannabis analysts and data from cannabis intelligence firm Headset.
“I think right now, companies that have close to 10 per cent market share or more will stick around for the foreseeable future,” said Matt Bottomley, cannabis analyst at Canaccord Genuity Corp. “Companies that rely on wholesaling to other LPS have only two or one per cent market share or are maybe waiting on their Health Canada licence to sell edibles, for example … unless they have tens and tens of millions in cash, they won’t survive.”
On May 29, Canopy Growth, still the largest legal cannabis company by market capitalization, reported earnings that came in well below many analysts’ expectations, mostly due to weak sales of dried flower in the recreational market, which was dominated by value brands from other companies such as Aurora, Aphria and Hexo Corp.
Canopy has been in a transitory phase for months, eliminating excess growing capacity, restructuring its management team and expanding its product lines.
The company, under cofounder and former chief executive Bruce Linton, was once focused on being a first mover in the sector, but current CEO David Klein said he would rather take the time to focus on having the “best product,” rather than being the first to get it out.
“We’re focused on Canada, Germany, the U.S., and getting our vapes, topicals and drinks right.”
Various market segments appear to have emerged since the legalization of cannabis 2.0 products last December: premium high-tetrahydrocannabinol dried flower, dried flower at the cheapest price, and derivative products such as edibles and vape pens.