Canopy prioritizing physical stores over online sales
CEO says it wants to focus on building deeper connections with new customers
The head of Canopy Growth Corp. says that the pot producer is prioritizing sales at physical retail stores rather than online ones in a bid to forge deeper ties with new cannabis customers in the early days of legalization.
“Where we thought it was prudent to focus was on the stores that are open with salespeople that can be trained … and where sales reps can actually differentiate our product, make sure that it’s in the right position, make sure that the education’s correct,” said Canopy chairman and co-CEO Bruce Linton during a quarterly conference call.
“So that, when you win,” Linton added, “it’s not a random lottery.”
The Canopy chief singled out his company’s home province, Ontario, with his remarks. Currently, Canada’s most populous province is selling recreational pot through an e-commerce channel only after the new provincial government decided to change its planned retail model just before the Oct. 17 legalization date.
Canopy already has stores selling cannabis in Newfoundland and Labrador and Manitoba, but Linton said the company also expects to be granted somewhere between one and four licences for physical stores in Ontario if the province’s bricks-and-mortar retail system ends up being based on licensed production sites.
“Where our push has been is where the physical stores are,” Linton told analysts. “But it hasn’t been our biggest priority to have the most product and push in Ontario.”
The comments on Canopy’s retail plans came after the Smiths Falls, Ont.-based company reported a $330.6-million loss for the three months ended Sept. 30, the final quarter before Canada’s official legalization of recreational cannabis on Oct. 17.
The loss was an increase over the $1.6 million deficit recorded a year ago, as the company’s expenses shot up ahead of legalization. Among those costs for the latest quarter were $39 million in sales and marketing expenses, up from $7.6 million for the same period last year.
Canopy said the marketing costs were needed because “strong brand recognition is, over time, essential to the Company’s suc- cessful market share acquisition strategy, particularly in the new recreational market in Canada.”
Revenue for Canopy’s most recent quarter was $23.3 million, up 33 per cent from the same period of the previous year, but down from the $25.9 million in revenue reported for the preceding quarter.
Part of the reason for the decline was that Canopy had been “stresstesting” recreational channels with the provinces, Linton told analysts, ensuring barcodes matched upandsoforth.
“Really, there was, call it, no revenue shipped to the provinces,” he added. “But with all the hubbub around it, what we saw was a bit of a distraction, we think, in our medical customers.”
Canopy shares closed at $45.14 in Toronto on Wednesday, down 11.3 per cent from the previous day’s close.
Broadly speaking, Canadian cannabis companies have been under pressure of late to try to meet demand for recreational pot.
“On a relative basis, Canopy may be ahead of many other licensed producers (LPs) in its ramp and ability to supply adult-use channels,” said a Wednesday note from BMO Capital Markets, which lowered its target price on Canopy to $55 from $72.
“However,” BMO added, “we believe there is significant uncertainty for the industry’s ramp schedules given the challenges associated with growing at scale and Health Canada licensing delays.”
The latest quarter also captured the period before the Nov. 1 announcement that a landmark $5-billion investment in Canopy by U.S.-based alcohol giant Constellation Brands Inc. had closed.
Canopy said Wednesday that the funds from the Constellation deal would be “deployed” on its key strategies of developing intellectual property and “replicating ” its Canadian business model in international markets.
Financial Post gzochodne@nationalpost.com Twitter.com/ GeoffZochodne