Nearly everyone expected sales to soar for the biggest marijuana producers after Canada's recreational marijuana market opened on Oct. 17, 2018. And that's exactly what happened.
The five biggest Canadian marijuana growers by market cap -- Canopy Growth (CGC -4.75%), Aurora Cannabis (ACB -3.87%), Tilray (TLRY), Cronos Group (CRON -1.62%), and Aphria (APHA) -- have all reported their first quarterly updates that include sales to the recreational pot market in Canada. All five companies posted tremendous sales growth. Here's how they stacked up against each other.
Sizing up their sales
Before we can compare the recreational pot sales for the big five Canadian marijuana producers, there are a couple of wrinkles. First, Aphria's results reported in January were for the quarter ending Nov. 30, 2018. Therefore, the company's initial recreational marijuana sales included one month less than its rivals. Second, neither Cronos Group nor Tilray provided details of their recreational marijuana sales for the quarter ending Dec. 31, 2018.
These issues make an apples-to-apples comparison of the companies' performance in the Canadian recreational pot market challenging, to say the least. However, we can look at the top marijuana growers' overall sales growth to get an idea of how they fared in the recreational market. We can also make some estimates that won't be exact but should be in the ballpark of how the companies performed.
Let's start with overall sales growth in the top marijuana producers' latest quarter compared to their previous quarter. On this metric, Canopy Growth was the clear winner, with Aurora Cannabis in a distant second place.
Now for the trickier task. Aurora and Canopy Growth provided detailed recreational marijuana sales numbers. Cronos and Tilray didn't, but all of their quarter-over-quarter sales growth was assumed to stem from the recreational market to calculate an estimated total recreational sales figure for each company. Also, estimated excise taxes were deducted from Cronos Group's and Tilray's recreational marijuana sales estimates to be consistent with the other companies' figures.
Aphria didn't provide a hard number for its recreational marijuana sales in its last quarter. However, the company's kilogram equivalents sold and average selling price, along with its excise taxes paid, were used to calculate its recreational pot sales for the period. This amount was then prorated through the end of 2018 to determine an estimate for Aphria's recreational marijuana sales for the same period as the other companies.
Again, Canopy Growth is the big winner, with recreational marijuana sales much higher than any of its peers. Aurora Cannabis came in second place again as well. Although the estimated sales for Aphria are admittedly a ballpark figure, the company likely claims a solid No. 3 position among the top Canadian marijuana growers.
The key differentiator
There was one factor that explained the differences in results among the top five Canadian marijuana producers: the amount of supply. Canopy Growth built up a much larger inventory going into the opening of the recreational pot market than its rivals did.
Supply will likely continue to be the key differentiator in the coming quarters. This could mean that the level of separation remains relatively significant between the top three companies and the bottom two marijuana growers. Canopy Growth, Aurora Cannabis, and Aphria have much higher production capacities than Cronos and Tilray do.
However, the gaps between Aphria, Aurora, and Canopy Growth are likely to tighten. Aurora noted in its fiscal Q2 update that its annual capacity should increase from 120,000 kilograms to more than 150,000 kilograms by the end of March 2019. Aphria also recently received a license for the expansion of its Aphria One facility. This boosts Aphria's total annual production capacity from 35,000 kilograms to 115,000 kilograms.
Expect recreational marijuana sales to continue to pick up for all five companies in the coming quarters. The next big development is the anticipated opening of the cannabis edibles, beverages, and concentrates market in October. Health Canada's proposed packaging regulations could be a damper on sales, but the companies that are ready to jump into the market should still enjoy a sales boost later this year.
Two of the top five marijuana growers have key partnerships lined up with beverage companies. Canopy Growth and big alcoholic beverage maker Constellation Brands plan to launch multiple non-alcoholic cannabis-infused beverages when the floodgates open. Tilray teamed up with giant beer company Anheuser-Busch InBev to develop cannabis-infused beverages for the Canadian market.
Aphria doesn't have a beverage maker as a partner. However, the company joined forces with Southern Glazer's, the largest wine and spirits distributor in North America, to distribute its recreational cannabis products in Canada. This relationship could be helpful when Canada's cannabis edibles and beverages market launches.
But Cronos Group could be behind its peers. When asked about his company's readiness to enter the cannabis edibles market in Cronos' Q4 conference call, CEO Mike Gorenstein replied, "We are hopeful."
It's still really early, though. Canopy Growth, Aurora Cannabis, Tilray, Cronos Group, and Aphria should see significant sales growth from the Canadian recreational marijuana market for a while to come. However, it won't be too long before cannabis markets in Europe and the U.S. hemp opportunity could become even more important to these top marijuana producers' success.