Last week, some of the top Canadian pot companies released their quarterly earnings reports, and every single one of them performed worse than expected. Leading this mediocre showing that horrified investors was Canopy Growth (NYSE:CGC).

Canopy's net revenues of 76.6 million Canadian dollars declined 15% sequentially and missed analyst estimates by some margin, and the company reported a net loss per share of CA$1.08. To be fair, Canopy's bottom line was impacted by a CA$32.7 million restructuring charge: After originally overestimating the demand for its oils and softgels products, the company has been modifying its portfolio since last quarter -- both in terms of the products it offers in these segments and their respective prices -- to better reflect the market demand and avoid the risk of oversupply.

But even setting that aside, the company's overall performance was bad, at best. Given its lackluster performance during the last quarter (and for that matter, the prior quarter too), it might be time to consider whether Canopy still deserves to be considered the top dog in the Canadian cannabis market. 

One company might overtake Canopy

Canopy has had an edge over most of its competitors for three major reasons. First, the company boasts one of the highest projected peak production capacities in the industry. Second, Canopy has a partnership with Constellation Brands (NYSE:STZ), which gave the company access to the cash it needed to fund its expansion efforts. Third, Canopy is one of the few Canadian pot companies that has supply deals signed with every province.

These advantages aren't going away anytime soon, and while many other cannabis companies can rival Canopy in one or two of those categories, none have managed to check all three boxes so far. Further, Canopy's horrible performance during the second quarter was largely due to industry-wide troubles. (True, there is the restructuring charge the company incurred due to its own issues.)

Man holding his bowed head.

Image Source: Getty Images.

Still, for the most part, the Canadian market has been an equal-opportunity saboteur. In particular, the biggest issue that has plagued Canadian cannabis companies has been the fact that regulatory agencies have been incredibly slow at issuing licenses, especially in the province of Ontario.

Canopy CEO Mark Zekulin said in the company's second-quarter earnings conference call, this "has resulted in half of the expected market in Canada simply not existing." There's just one cannabis store for 600,000 people in Canada's most populated province. Given this issue and others -- such as the persistence of illicit cannabis markets -- perhaps Canopy still deserves to be atop the ladder. All these arguments in favor of Canopy carry some weight, but there is one company that managed to vastly outperform Canopy during their latest respective reported quarters: Aphria (NYSE:APHA).

During its last quarter, Aphria recorded a total-revenue figure of CA$126 million, and while that represented a slight sequential decrease, it is head and shoulders above Canopy's revenue. Aphria also reported a net income of CA$16.4 million, which compares favorably to Canopy's net loss. Aphria's average selling prices for its recreational and medical segments were CA$6.02 and CA$7.56, respectively, while Canopy's medical and recreational average selling prices came in at CA$8.20 and CA$5.66, respectively. Aphria's revenue guidance for the full fiscal year is between CA$650 million and CA$700 million, and the company also plans on being profitable on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.

Canopy's goal to achieve a billion dollar run rate by the end of the year may materialize, although given recent developments, that seems a bit unlikely, but the company only plans on being profitable on an EBITDA basis by 2022.

Aphria currently trades at a reasonable 16 times past earnings, whereas Canopy's earnings multiples are hard to evaluate since its bottom line is still very much in the red. Further, Aphria arguably boasts a stronger balance sheet with significantly less long term debt, CA$54.2 million compared to Canopy's CA$590 million.

That isn't to say that Aphria beats Canopy in every category. The latter has a higher projected peak production capacity, at about 500,000 kilograms compared to Aphria's 255,000 kilograms, and Canopy has yet to fully benefit from its partnership with Constellation Brands. But given recent developments, Aphria seems to be nipping at Canopy's heels. 

Some might point out that the bulk of Aphria's revenue was generated in international markets, but given the issues the Canadian market is currently facing, focusing on international markets might not be a bad strategy.

Canopy's last hope?

Canopy's new partnership with Drake is not likely to be its saving grace. Though the two parties announced the launch of a joint cannabis wellness venture by the name of More Life Growth Company in Toronto -- in which Canopy will hold a 40% stake -- it is far too early for investors to pin their hopes on this deal.

Instead, it will be interesting to watch how the cannabis derivative market develops in Canada. True, derivative products probably won't hit the shelves until mid-December (despite the market opening on Oct. 17), but Canopy is well-positioned to profit from this lucrative segment thanks to its partnering up with Constellation Brands. Thus, it may be a bit early to bury Canopy, but the stakes are now higher than ever for the company, and unless its financial results improve soon, investors may increasingly start to look elsewhere.