Mining the Ontario Cannabis Store One Year Report
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The Ontario Cannabis Store produced a one year report from April 1, 2019 to March 31, 2020, effectively covering the term when Bricks & Mortar stores started opening.
Let us see what the report can tell us about the past year and the 2.0 products.
Revenue and Grams by Segment:
Let’s start off by noting they have errors:
- Page 1 of the report they indicate sales of $385,100,000 while if you spread the page 3 results you get $374,780,000, a difference of $10,320,000. That ain’t a rounding error folks.
- Page 3 they have OCS selling $110,000 or 4,000 grams of beverages. This works out to $27.50 per gram while the Brick & Mortar sold $300,000 or 50,000 grams or $6.00 per gram.
I have listed the segments by highest ordinal rank. Thus, Dried Flower and Pre Rolls come in at #1 and #2. They account for 84% of total sales. But keep in mind that 2.0 products have only been available since January 5, 2020.
Oils comes in at #3 and Vapes leaps in front of 1.0 Capsules, despite being only available for three months. I think Canopy may have had more Capsules returned than sold.
In each and every segment the Brick & Mortar stores are pricing at a premium to OCS. Dried flower is sold at $1.61/gram higher and prerolls at $1.33/gram higher.
Is this OCS undercutting retailers or retailers charging a margin given less competition in the areas they serve?
The biggest differentials were Capsules at $2.33/gram and Vapes at $2.83/gram. For Capsules this could be because the OCS was getting pricing provisions from LP’s, whereas retailers don’t have the ability to return or renegotiate on slow moving items. It will be interesting to see if the Vapes differential compresses overtime.
OCS sold 18% of total $’s sold, whereas retailers sold 82%. But what is interesting is where that ratio is statistically different in the product segments.
- Pre Rolls are 8% OCS to 92% retailers. Looks like a convenience buy to me.
- Oils are 36% OCS to 64% retailers. Oils had the smallest pricing differential at $0.50/gram yet purchasing was twice the total average at the OCS.
- Capsules are 31% OCS to 69% retailers, similar to Oils, but they have the biggest 1.0 differential at $2.83/gram. I am really thinking the differential is driven by savings the OCS gets after delivery in event that items don’t sell through.
- Beverages are 27% OCs to 73% retailers. Too early to see if this is a trend. It might just be that you can order more beverages on line but replicating orders versus at retailers.
Let’s take a closer look at 2.0 products
Vapes are far outpacing #2 Edibles 3.9:1 sales ratio. Beverages will get a boost from Canopy launches that were late in the Q. Concentrates and topicals are very small.
2.0 products are seeing a nice MoM increase throughout increasing +50% in March 2020 alone.
What I have done is try to extrapolate what 2.0 were throughout Canada for the 1st Q of C2020 by taking Canada’s $ total subtracting Quebec (no Vapes and edibles) and determining what % Ontario had of that amount. Then I extrapolated Ontario to the balance of Canada. For the first Q 2.0 would have been approximately $61 million.
The major sellers of 2.0 in the latest Q was:
- Auxly $10 million
- Aphria $6.2 million
- Aurora $5.8 million
- Organingram $3.0 million
- Canopy $2.2 million
That is $27.2 million of the extrapolated $61 million at 70% (to eliminate markup) equals $42.7 million. These 5 LP’s would have accounted for 63% of 2.0 sales.
If the $42.7 million is accurate, then I will double down on my podcast comments that extractors will have a large drop in March 31, 2020 sales. Especially when you consider the extracted product is less than 50% of the final LP revenue.
I cannot remember what bank had projected 2.0 to be $250 million in year 1. I thought they were wrong then and I definitely think they are wrong now at a retail level. With no growth from Q1 C2020 2.0 aggregate revenue would get to $244 million. A 20% QoQ increase will get them to $326 million. I think $400-425 million is a likely target range for 2.0 for its first year.
If the bank was talking about LP sales, versus retail sales, then they would be more accurate.
Also, of note: Ontario average 34 stores opened over the full year and the retailers averaged $25,000/day in sales. This number will decrease as more stores open up and areas get saturated.
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