Marijuana Datajam: Dried Flower Macro Edition

Approximate share of individual SKU listings at the 4 provincial online portals in our sample.

Health Canada released the nationwide cannabis sales and inventory last week. The numbers showed a continuation of  a couple of trends and the sudden reversal of another one that gave us a better indication about the shape of the national marijuana market. This post looks at dry flower and the emerging bulk sales market. More to come on oil.

The summer bud bump?

LP & provincial distributor sales through July, with total sales. Click to enlarge.

The 14% month-over month growth in sales of dried flower is the largest growth since the spring. With no prior year data, we can’t set a baseline for seasonality, but one might expect some kind of sales bump for the camping and festival season.

The interesting bit here is the growth in finished inventory at licensed producers coming at the same time as the provincial/retail inventories dipped. This could represent the provinces re-grouping, tracking what moves, and adjusting their ordering accordingly so that they end up with more of what sells. Aurora Cannabis (TSX:ACB)(NASDAQ:ACB)‘s most recent earnings showed us that there is a market developing for bulk sales. Mature operations are in a position to supply it and command a premium for high-test strains because, at that level, it only really has to be green and worth smoking. The packaging and branding and naming is the buyer’s problem, and those looking to maintain a brand may choose to sacrifice consistency just to get and keep something up on the shelf.

Growth in unfinished inventory slowed, but it’s still 25x sales. We’re watching this metric closely ahead of extracts. Click to enlarge.

LP inventory saw its strongest month over month jump yet in July, more than twice any previous change. This is a sign that a larger portion of the total harvest is becoming consumer-grade product, fit to be put in a bottle and sold. Since the unfinished inventory grew more than the finished inventory in terms of kgs, we’re maintaining our strong suspicion that much of this inventory is destined for the derivatives and extracts market. Blaming the apparent stockpile on poor quality might be a bit too simple. Any grade of product can be distilled into SOMETHING of value. At the moment, it may be about the various grades and maturities of flower and trim at the different LPs not yet being married with capacity in Canada’s still-developing extraction infrastructure. Nobody really knows how that’s going to go yet but, to understand it, we’re going to need to take a closer look at the licenses.

Licensing and the Bulk Market

As of Friday October 4th, Health Canada had issued 196 cultivation licenses and 165 processing licenses (there is some crossover, some licenses have both). So far, only 83 of those licenses are allowed to sell consumer-ready cannabis products to the provincial distributors who serve the retail market, which represents 86% of the dried flower sold to end users in Canada.

Fundamental Hype has no idea why anyone would want to sell fresh bud to distributors or patients, but we don’t make the rules.

Most of the licenses waiting for HC blessing to sell to the provinces can still sell to the bulk market, and there’s good margin to be made doing so. We count 51 unique corporate entities with products in our sample stores. Some of those are companies with multiple licenses, and their period sales sometimes greatly out-pace the product count. WeedMD (TSX.V:WMD) out-sold Cronos (TSX:CRON)(NASDAQ:CRON) in calendar Q2 by weight, despite only having five dried flower products in stock in our sample province catalogs, to Cronos’ 33 in-stock flower products.

Sales leader Aurora was third in retail product count, thanks to big sales on the bulk and medical market. Provinces are working their way through that CannTrust stock. Click to enlarge.
WeedMD out sold Cronos by weight, despite having considerably fewer listings. Click to enlarge.

Weed MD sold most of that product on the bulk market, to create a 46% gross margin, only seven points shy of Cronos’ 53% gross margin for the period. Considering the fact that unit sales leader Aurora did 20% of their sales on the bulk market, investors ought to consider this market a part of the sales landscape going forward.

We swapped WeedMD in for CannTrust, considering the circumstances. Supreme and TGOD still don’t publish sales by weight, but TGOD wouldn’t show up at this scale anyway. Click to enlarge.


So far, though, we’re not seeing any of the partial licenses – the ones only allowed to sell to the province and to medical patients – taking great advantage of the bulk sales market as one might expect, at least not in public companies. In practice, any company with a cultivation infrastructure capable of being relevant to the bulk market ends up with their full sales license.

Stay tuned to Marijuana Datajam for posts on the oil market, and a very special look at notable absences; companies whose big promises are wearing thinner with every data set they fail to show up in.

This post and the graphics it contains are the author’s original work, created with data sourced from Health Canada and scraped from the catalogs of the BC, Ontario, PEI and Newfoundland on-line cannabis sales portals. Fundamental Hype has received no consideration, financial or otherwise, from any of the companies or entities referenced in this post. It is not sponsored content, and is not investment advice (or even “tips!”). More on all that here.


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About Braden Maccke 74 Articles
Founder and Editor in Chief at Fundamental Hype, a blog about venture stage finance and the media that supports it.

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