Cannabis companies just suffered through possibly the ugliest week of an ugly year, but they all have excuses.
In a flood of earnings reports that pot companies released just ahead of the mandated deadline for quarterly updates, companies proved that they have not been very good at figuring out how to grow, package, distribute and sell the long-illegal plant. Investors punished pot stocks in response: In the past week, the ETFMG Alternative Harvest ETF MJ, -2.27% declined 14.5%, the Horizons Marijuana Life Sciences Index ETF HMMJ, -3.04% fell 17.2% and the Cannabis ETF THCX, -1.73% fell 15.8%.
Much more was expected amid the anniversary of weed being legalized for adult recreational use in Canada, the first industrialized nation to do so, and ahead of the coming launch of legal edible and vaping products, commonly referred to as “Cannabis 2.0” in the industry. Executives who had promised much more were forced to say on earnings conference calls this week why they were struggling to sell a product that is obviously popular, and they mostly focused on four reasons for their poor performance.
Not enough retail stores, especially in Canada’s most populous province
Bricks-and-mortar retail locations have been far slower than expected, with Ontario — the country’s most populous province, with roughly 14.6 million residents — opening a total of 25 private stores so far. While Ontario isn’t the only province to have an inadequate number of retail shops (Quebec’s government-run stores, too, aren’t as numerous as executives would like), other provinces such as Alberta have allowed several hundred private locations to open.
• “[T]he market opportunity today is simply not living up to expectations and at the risk of oversimplifying, 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,” Canopy Growth Corp. CGC, -3.22% WEED, -3.20% Chief Executive Mark Zekulin said. “Ontario represents 40% of the country’s population yet has one retail cannabis store per 600,000 people. When one year into the market the addressable market is nearly half what is expected, there is going to be meaningful short-term problems.”
• “Looking at our business geographically, the challenges in the Canadian market are ongoing with a limited number of retail locations and a supply-demand imbalance,” Tilray Inc. TLRY, +0.61% Chief Executive Officer Brendan