Zekulin said, “The inability of the Ontario government to license retail stores, right off the bat, has resulted in half of the expected market in Canada simply not existing.”
- He noted LPs should accept responsibility for the initial supply shortage that forced Ontario to shut down REC retail licensing, but concluded, “The fact is: there are not enough stores [in Ontario…] and the inability to get more stores rolled out is dramatically hurting the sector.”
- Canopy president Rade Kovacevic said, “The Canadian market is 6-12 months behind where we thought it would be because of (slow) store openings.”
Canopy CFO Mike Lee said the company assumes Ontario will begin licensing 40 new stores per month beginning in January.
- Saying the company believes the province could support 1,000 retailers, Canopy predicted “The number of stores serving [Ontario] consumers could approach 600 within 12 to 18 months.”
- BMO Capital Markets analyst Tamy Chen said Ontario could not possibly open enough stores in the next year to accommodate the sector’s expected production.
Canopy took “a restructuring charge of $32.7M for returns, return provisions, and pricing allowances primarily related to its softgel & oil portfolio”—two products unpopular with consumers.
- During the last quarterly earnings report in August, Canopy took an $8M gross revenue adjustment on “oversupply of certain oil and gel-cap formats in certain markets.” Retailers reported they were “just not selling.”
- Responding to this quarter’s news, the Financial Post‘s Vanmala Subramaniam said, “Those were disaster products for Canopy.”
- Zekulin connected low oils and gelcap sales to the shortage of stores, insisting, “There is still interest in soft gels and oils.”
Inventory writedowns could become more widespread as wholesale prices decline and LPs that estimated the value of their “biological assets” at far greater than the present selling price are forced to adjust.