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This was an extremely tough week for investors and operators in the Canadian cannabis sector. We all knew that the roll out of legalization in Canada is highly flawed given the lack of retail distribution, but the full extent of the weakness was finally revealed, with the largest of the licensed producers (LPs) revealing abysmal numbers for the most part. While Tilray and Sundial were able to grow sequentially, Aurora Cannabis, Canopy Growth and Supreme Cannabis suffered double-digit percentage declines in the September quarter compared to the June quarter, with Organigram also pre-announcing a large decline sequentially from its Q3 to its Q4.
The narrative is consistent across all of the LPs: The number of stores in Ontario is insufficient. The province has a population of almost 15 million, yet there are fewer than three dozen stores. In Toronto, the largest city, there are only 10 stores open at this time in the entire metropolitan area. Contrast that with Chicago, a city similar in size, which had a lottery on Friday in advance of Illinois legalizing. The stores won’t all be open on day 1, as the winners need to secure locations, but the city has awarded 31 dispensary permits. Unlike Ontario, which had minimal qualifications required to enter its lottery, all of the Chicago lottery participants were already operating medical dispensaries and will hit the ground running. Additionally, the city expects to double the number of stores quickly.
While this past week saw selling across the sector due to the disappointing results from the LPs, which continue to struggle with profitability as well, the coming week is likely to change the tone as the reporting shifts to American multi-state operators (MSOs). We will see results from the three largest MSOs in terms of revenue, and it’s likely that the very positive trends from the first half of the year persist.
Trulieve is expected to generate Q3 revenue of $66 million, which would represent sequential growth of 14%. The company has exceeded expectations in each of the four prior quarters, its entire history as a public company, and it is generating huge profits from its Florida operations. Curaleaf could surpass Trulieve, as it