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Report on Business Cannabis Professional Out-of-stock online cannabis offerings rise in wake of halted CannTrust sales

HIGHLIGHTS
  1. Stockouts in five provinces rise to 57 per cent from 52 per cent in early July
  2. New cannabis product growth slows online, Canopy holds biggest market share
  3. Online pre-roll stockouts rise to 66 per cent, dried flower up at 59 per cent

The amount of out-of-stock online cannabis products that were sold on legal e-commerce platforms in Canada rose in the past month, while Canopy Growth Corp. gained the biggest share of in-stock offerings in the weeks after CannTrust halted its sales, Cowen Equity Research data show.

E-commerce "stockouts" of individual cannabis items remain elevated at 57 per cent versus 52 per cent in early July, Cowen said in a report.

CannTrust, which had roughly 70,000 medical cannabis patients, stopped selling pot in July after admitting to growing thousands of kilograms in illegal rooms.

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Canopy remained in top place of Canadian licensed producers (LPs) with a 20 per cent market share after adding three new stock keeping units (SKUs) that brought its offerings to 500, the most for any LP. While the amount of its out-of-stock products rose by 1.7 points to 53 per cent, its average price for dry flower was $10.68 per gram, 2 per cent above the category while its pre-rolls reached a 1 per cent discount at $13.28, Cowen said.

“We acknowledge that share gains could result (from) a number of factors beyond CannTrust,” Cowen said.

Aurora Cannabis Inc., however, generated an 11 per cent market share of in-stock SKUs over the past four weeks when it added 9 SKUs for a tally of 263 SKUs. Still, its stockout rate rose by 4.1 points to 52 per cent, driven primarily by Alberta and Ontario sales. Its average price for dry flower was $11.31 per gram, 8 per cent above the category. Its pre-rolls held a premium of 29 per cent at $17.31.

Looking at 1,337 product offerings with 2,735 SKUs on e-commerce platforms in British Columbia, Alberta, Ontario, New Brunswick, and Newfoundland – which account for roughly 65 per cent of Canada’s population – “stockout” rates rose by 4.5 points from July 8 to 57 per cent. Excluding CannTrust data, however, online stockout rates in the five provinces reached just 53 per cent.

New Brunswick, though a small province, saw the biggest increase at 7.9 points, bringing its rate of out-of-stock products listed for sale online at 58 per cent. In Ontario, the country’s biggest consumer market that started opening licensed retail stores later than other provinces in April, the amount of out-of-stock cannabis products rose by 2.7 points to 63 per cent. It rose by 5.6 points to 58 per cent in B.C.,6 points to 37 per cent in Alberta, and 0.8 point to 75 per cent in Newfoundland.

“While it is difficult to assess how much of the change is demand vs. supply driven, our view is that demand remains strong while supply is limited,” Cowen stated.

“Based on available products, we note that vendor concentration remains highest in Newfoundland as 71% of available products are offered by only three vendors with B.C. (32 per cent) and Alberta (41 per cent) more evenly dispersed.”

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The growth rate of SKU counts moderated, with 62 added over the last four weeks. This lowered the average number of SKUs added per week since recreational pot was legalized in October 2018, to 43 versus 46 previously. The most new products were added in Alberta, where more than 250 stores have received licences, which is by far the most for any province. Online cannabis SKUs in Alberta rose by 21 new items, or 3.9 per cent. Ontario, however, saw the biggest absolute increase at 27, or 3.8 per cent.

Loose leaf flower accounted for 70 per cent of the country’s online stockout rates, and rose by 4.2 points to 59 per cent. Meanwhile, the average price across the five provinces fell by 103 basis points to $10.48 per gram. In Alberta, which has the most competition from physical retail outlets, the average e-commerce price dropped 164 basis points to $11.80. This was the highest among the five provinces surveyed by Cowen.

In Ontario, which has less than a quarter the amount of brick-and-mortar stores than Alberta, the average price rose by 30 basis points to $10.91. Average prices fell in B.C., New Brunswick and Newfoundland to levels ranging from $8.79 to $11.35.

The amount of pre-rolls that were out of stock rose by 7.3 per cent to 66 per cent, while the average price rose by 33 basis points to $13.37, with the biggest increase in Ontario to $15.49. The price premium brought in by pre-rolls versus dry flower rose by 173 basis points to 28 per cent, “which speaks to consumers’ willingness to pay for value-added cannabis products,” Cowen said.

Later this year, cannabis derivative products such as edibles and vaporizers are expected to be legalized, which will sharply increase product variety. For now, dried flower makes up the bulk of legal pot sales.

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