The Numbers Are In: OCS A Year In Review

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The numbers are out for Ontario's cannabis sales. Ranging for the period between April 1, 2019, to March 31, 2020, the sales numbers put out by the OCS give a valuable insight into the volume and distribution of sales across retail and online sales. 

Coming in at just over C$385 million, with cannabis kilogram equivalent of just over 35 million grams of cannabis, that represents an average of around C$11 per gram equivalent spent per gram of cannabis sold in all forms ranging from dried flower, oils, edibles, capsules, vapes, etc.(1).

A selection of marijuana ordered from the Ontario Cannabis Store.
Various Dried Flower Options on Display

Breaking Down The Numbers:

  • OCS sales came in at just over C$71 million, representing about 18.5% of the overall sales.
    • We anticipate an approximate 80 - 20 split for sales across retail and OCS, to remain constant, despite the continual opening of new stores across Ontario.
    • Due to the pandemic which saw temporary closing of retail stores in early March, we expect more consumers to consistently order online through OCS, which offers the lowest prices, as well as direct to door delivery.
  • As of March 31 2020, 53 stores were open for business in Ontario.
    • The overall sales volume will increase as this number continues to go up. 
    • As mentioned in my previous article here, Ontario sales are lower compared to its peers. An increase in store density across Ontario is crucial in order to increase sales.
    • Average per capita spending of 20$ has scope to go a lot higher, given a store density which is closer to that of the LCBO.
  • Dried flower still made up a high percentage of overall sales at 79%.
    • We anticipate this number to reduce as new customers will be more interested in options alternate to smoking, including beverages and edible options that are now available.
    • We expect the dollar per gram equivalent spent by Ontarians to reduce, but only slightly as the mix of dried flower sales reduce compared to other higher margin products, and dried flower prices continue to come down.
  • The average prices charged by the OCS have been reduced by 25% since the summer of 2019.
    • Despite 52% of cannabis sold came in at over 20% THC, the introduction of budget bulk options of 'mid-range' flower has been a key driver in capturing users from the illicit markets.
  • Ontario's share of the overall cannabis market compared to the illicit market came in at 19% for Q4 2019.
    • This number represents an increase from 18.3% in Q3 2019, and 12.5% in Q2 2019.
    • We expect the legal market to reach upwards of 30% market share by the end of 2020 as the illicit market continues to lose out to the continually reduced price points offered by the legal market.
    • Cannabis consumers who care about quality grown cannabis, pesticide free will continue switching over to the legal market, especially now that direct to door delivery options are more so readily available across Ontario.

Top Performing Companies

I'll be mainly covering the companies attributed to the top performing brands in the dried flower category, as it represents close to 80% of the sales in Ontario. To get the full break down, you can find the OCS report here.

Top Five Performing Brands By Category broken down for OCS and retail sales (3)

Aurora Cannabis: (TSX:ACB.TO) Along with their subsidiary MedReleaf's San Rafael '71, came in at the top spot with an impressive 16% market share across Ontario when looking at the retail and OCS sales, and scored well in just about every category(2). The one thing Aurora has going for it is great brand awareness. All the marketing dollars spent by Aurora in brands such as their Aurora Drift line has definitely translated into them getting a well deserved top spot. The question remains however, can they keep their top spot moving forward? It is difficult to say, but having tried a few Aurora products myself, I will say that I would prefer the San Rafael line. As more budget options continue to arrive, and competition continually increases by some of the other names in the list, I see a more even spread of the percent sales moving forward, as Aurora's cost structure is still too high.

Redecan: A consistently good option according to the OCS reddit board which can be found under 'r/TheOCS' on reddit. Initially plagued with quality control issues when they first launched, they've quickly cleaned up their reputation since. I keep seeing consistently good reviews of their products, and intend on trying them myself. A privately held company with over two decades of growing experience, they bring a solid line of products on top of their dried flower SKUs, including vapes, oils, capsules and more.

Village Farms: (TSX:VFF.TO) majority shareholder in Pure Sunfarms, which has a solid offering of products and has managed to snag a top spot despite launching their product line in October of 2019. That translates into six months worth of sales. A more recent measurement in April showed they had captured about 20% of the OCS share with the launch of their 28 gram offerings which are the lowest in price available on the legal market. Their proprietary growing methods along with low growing costs are a few of the reasons they enjoy such great success. Similar to Redecan, the Village Farms team brings almost three decades of growing experience, allowing them to snag a top spot in the OCS report. Upcoming launch of 2.0 products looks very promising.

Canopy Growth: (TSX:WEED.TO) Their Tokyo Smoke and Tweed brands have been available since the beginning of legalization. Similar to Aurora, they bring some great brand awareness resulting in a top spot on the OCS report. Having gone a slightly different route than Aurora, Canopy Growth owns and operates several retail stores under the Tokyo Smoke brand. Their recent pivot into the beverages represents a shift in focus in capturing business longer term for cannabis 2.0 products. Similar to Aurora, their cost structure is too high, however the difference here is that they actually have the cash to remain unprofitable for several more quarters. New and improved management shows promise, however the recent quarterly report showed that the transition period will continue to be at least a few more quarters.

Organigram: (TSX:OGI.TO) Their Edison and Trailblazer lines have been decent performers in the legal market, allowing them to get a spot in the report. Organigram has also recently gone international, announcing a supply deal with an Israeli cannabis company for up to six metric tons of cannabis(4). In my opinion, it is still better positioned than companies such as HEXO, and the management team is among one of the better ones in the industry. I am cautiously optimistic on the company moving forward due to recent layoffs and share dilution.

Conclusion

The legal market in Ontario is headed in the right direction, with new store openings set to resume shortly. It will be the long term catalyst for several Canadian cannabis companies. It will be interesting to see the 2020 year in review, as this report mainly covered 2019. Things to watch for will be how companies who had the first mover advantage perform as competition continues to increase across the board. We have already witnessed how cannabis sales have held up remarkably well during the pandemic. There is a good chance that sales hold up equally well with a recession on the horizon. We will continue to cover and share our thoughts as the industry evolves and combats the illicit market.

About The Author

I am an electrical engineering graduate from Carleton University, and have always had a keen interest in investing. I have been following events as they unfold in the cannabis space in Canada since 2017 and have always had the opinion that decriminalization is the way to go as it reduces drug related crime and can be monetized as a source of tax revenue for the government. My goal is to help people who invest in a risky space like cannabis understand what to look for, as the amount of information available is often overwhelming for new investors. Aside from that, there are several companies all competing with each other to get your investment dollars!

References

  1. Ontario sold over $385 million of legal cannabis last year
  2. Ontario Cannabis Store report shows Aurora leading flower sales
  3. OCS: A Year In Review
  4. OrganiGram to Supply Israeli Company With Up to 6 Metric Tons of Cannabis
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