Ontario is Canada’s biggest province. It was also terribly slow to roll out retail stores but is now rolling out eighty a month.  The OCS has put out three report cards: One from start of legalization to March 31, 2020, then Q2 and Q3 C2020.

We have seen a few comments on this on various social media, but no one has been comparing the quarterly reports QoQ.  And what do TheCannalysts do???  We compare and trend over quarters. 

So, let us take a Cannalysts styled wander through these reports.

Ontario is 28.6% of Canada’s total recreational cannabis sales and 39% of the population.  This suggest further growth is available.

Interesting to note, that the StatsCanada figures seem to include provincial HST in their monthly figures when compared to Ontario posted sales figures.  I am not sure if they do that with each province, but it would skew sales upwards.

Ontario 1.0 and 2.0 by Q:

With Ontario’s first two retail store lotteries completed and most of those stores opened by March 31, 2020 the AGCO started rolling out 20 stores a month, then 40 stores a month, and then the December 2020 announcement of 80 stores a month.

That roll out has seen online sales plummet from 66% to 34% and down to 15% ($30 million/Q) in the most recent Q.  I imagine this percentage will normalize at some point. 

Also notable is that 2.0 product penetration over the last two Q’s is 78% and 77% and seems to have stabilized.  It will be interesting to see if with the recent pricing pressure evidenced on vapes (the largest 2.0 segment by far) will attract more black market or convert those purchasing flower to convert.

Let us peak at more detailed Q3 C2020 data before we start looking at more trends.

OCS Detail: Quarter ended September 30, 2020

Top 3 product segments are not surprising: Dried Flower 60%, Vapes 15% and Pre-Rolls 12% aggregating 87% (85% last Q) of the market. 

In every segment the OCS pricing per gram sold beats the retail stores. The closest is beverages at only a $0.10/gram differential.  This is likely due to the “free shipping” that OCS offers.  They likely need a higher per unit price to cover that “free” shipping.

Retail Store owners must like competing with their supplier (snark).  This suggests that retail stores will likely see pricing pressure as neighborhoods start to see multiple store fronts.  I would also extend that to the publicly traded retailers FAF, HITI and ISH, and I would suggest investors pay close attention to their retail gross margins on cannabis sales.

The other thing that stands out is that with an 85% of cannabis purchased at retail stores pre rolls differ most from that base with 94% being purchased in a store.  Impulse/convenience buys the likely reason, as pricing wise online is +20% cheaper.

Oils and capsules swing away from the average with 68% and 66%, respectively, bought in a store. Given these 1.0 products have likely garnered a customer base that knows what they are buying, it does not surprise me that online does better than the cannabis average in these segments. Capsules are also the biggest price differential between online and retail.  This is likely because of the pricing rebates that have been given to OCS from the largest LPs (Canopy and Aurora) in order to reduce outright returns from the OCS to LP. Retail stores do not have the ability to ship slow moving product back to the LP.

Edibles are the second largest 2.0 seller but rings in at only 4% of the market at $8 million in sales.  The much celebrated (by investors anyway) beverage category rings in at 2% of sales with $3.2 million in sales.

OCS Cannabis Sales by Product Segment: Including Dried Flower

Dried flower is the behemoth of the industry. So much so, two charts down we will remove them and look at the remaining segments without the skewing.

OCS Sales by Product Segment: % per Segment

Dried flower is 60% of the overall Ontario market, followed by vapes at 15% and pre-rolls at 12%.  We will look at QoQ deltas below.

OCS Sales by Product Segment: Excluding Dried Flower

This gives us a cleaner view of the segments as we have removed dried flower. If you were to further remove vapes and pre rolls there are a lot of companies slinging different formats competing for $26 million a quarter in revenue, less if you remove distribution and retail margin.

OCS $ Delta QoQ by Product Segment:

As we do not have a clean view of the Q1 C2020, the deltas for Q2 to Q3 are the ones worth looking at.

And what jumps off the page is pre rolls increased more QoQ at +$13 million than vapes did at +$12 million.  We have heard the demographic was underserviced but with the explosion of stores in Q3 (183 at Q end versus 110 +66% at Q2) the walk ups are buying strong. This trend could hold given the recent ramp in new stores.

Notable $ increases QoQ:

• Edibles were the next biggest delta at +$2.7 million
• Followed by beverages at +$1.6 million.
• Concentrates cracks a $1 million delta at +$1.1 million

OCS % Delta QoQ by Product Segment:

If you want the % growth QoQ you get a different look Q3 vs Q2.

• Dried flower +61%
• Vapes +70%
• Prerolls +117%

When you see these type of increase and certain LP’s struggling it shows how disconnected they are from the market.

Other notables

• Topicals, working off a very small base, +261%
• Beverages +109%
• Edibles +52%
• No surprise that seeds decreased 38%, not the outdoor growing season.  These should show growth (excuse pun) in Q1 and Q2 C2021.

Aggregated Top 5 Ontario Online Brands and Top 5 Retail Store Brands: Dried Flower

One thing I want to clarify with the next three slides is that the OCS Report card lists top 5 brands by OCS and top 5 by Retail Stores. As sales tilts heavily to retail stores a top 5 OCS online brand might not make the top 5 (or top 10) retail brand.  Notwithstanding, I have aggregated the sales provided by each of OCS and Retail Stores and presented them in descending order. IF there were more than two brands from a single company, I aggregated them on the right-hand side for ease of reference. One last item, I stopped after doing the top 3 segments, as that covers 87% of the market.  To do the lower segments produces diminished returns on the value of the data.

PSF doubled (+110%) dried flower sales QoQ to take the top spot from Redecan (+29%) and Aphria’s combined Good Supply + RIFF brands (+57%).  Aurora saw their Daily Special grow +49%.

On a market share basis: (Note: This is JUST market share IF they were in Top 5 of each category and doesn’t include other brands not represented or they made one top 5 list and not the other)

1. PSF 12%
2. Aphria brands Good supply and RIFF 10%. RIFF does not make the top 5 for OCS online.
3. Redecan 9%
4. Aurora brand Daily Special 8%

Aggregated Top 5 Ontario Online Brands and Top 5 Retail Store Brands: Vapes

QoQ saw Redecan (+38%) maintain its number one position in vapes, followed by Aphria Good Supply and Solei (+99%), and Auxly’s Foray and Kolab brands (+225%). Canaca (Tilray) only lands in Top 5 of Retail Stores, and not online, with $1.3 million.

On a market share basis: (Note: This is JUST market share IF they were in Top 5 of each category and does not include other brands not represented or they made one top 5 list and not the other)

1. PSF 19%
2. Good Supply 18%
3. Auxly brands Foray and Kolab 11%
4. Canaca 4% (Tilray brand that will merge with Aphria) on Retail Top 5 only

Aggregated Top 5 Ontario Online Brands and Top 5 Retail Store Brands: Pre-Rolls

Aphria’s Good Supply is the #1 brand for pre-rolls and Aphria brands Good Supply, RIFF and Solei hold a 35% share of Ontario pre-roll market at $9 million in sales. Their sales grew +167% QoQ or $5.8 million.

Organigram’s Edison brand comes in at #4 for Q3 at $2 million, a +$1.3 million increase or +168%.

Redecan slots in at #5 brand at $1.4 million in sales +15%.

Nice to see Tantalus Labs cracking the list in Q3, albeit OCS online only is included at $0.1 million.

On a market share basis: (Note: This is JUST market share IF they were in Top 5 of each category and does not include other brands not represented or they made one top 5 list and not the other)

1. Aphria brands 35%
2. Edison 8% on Retail Top 5 only
3. Redecan 6%

And that’s a wrap on the OCS Report Card review.

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author has a position in Aphria and will not start one or divest in the next five days.