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All the excuses cannabis companies make for a nasty income

Cannabis companies just suffered through possibly the ugliest week of a bad year, but they all have excuses.

In a flood of revenue reports that pot companies released just before the quarterly mandate deadline, companies proved that they have not been very good at figuring out how to grow, package, distribute and sell the long illegal plant. Investors punish pot stocks in response: Over the past week ETFMG Alternative Harvest ETF

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falls 14.5%, Horizons Marijuana Life Sciences Index ETF

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fell 1

7.2% and Cannabis ETF

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falls 15.8%.

Much more was expected in the middle of the anniversary that weed was legalized for recreational use by adults in Canada, the first industrialized nation to do so, and ahead of the upcoming launch of legal edible and weapon products, often called "Cannabis 2.0" in industry. Leaders who had promised much more were forced to say about earnings conference calls this week why they struggled to sell a product that is obviously popular, and they focused largely on four reasons for their poor performance.

Not enough retailers, especially in Canada's most populous province

Bricks and mortar stores and bricks have been far slower than expected, with Ontario – the country's most populous province, with about 14.6 million inhabitants – opening a total of 25 private shops so far. While Ontario is not the only province that has an insufficient number of retailers (Quebec's government-run stores are not as many as managers want), other provinces such as Alberta have allowed hundreds of private locations to open.

• “[T] The market opportunity today simply does not live up to expectations, and the risk of oversimplification has led the Ontario government's lack of licensing the stores right off the bat to lead to half of the expected market in Canada simply not existing, ”Canopy Growth Corp.

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said CEO Mark Zekulin. "Ontario represents 40% of the country's population, but still has one cannabis retail trade per 600,000 people. When one year out in the market, the addressable market is almost half of what is expected, there will be significant short-term problems." [19659002] Read: CEO of Canopy Growth defends the ugly quarter as a one-off event

• "Looking at our business geographically, the challenges in the Canadian market are ongoing with a limited number of retail outlets and an imbalance in supply and demand, "Tilray Inc.

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said CEO Brendan Kennedy.

"There are still many retailers in the United States who will not – they will not buy or they will not sell. They will not store products containing CBD and are edible, digestible and then dietary supplements. They are waiting for some clarification from [U.S. Food and Drug Administration] And that's where a large part of the US market right now is about digestible products. "

•" Well, you say there have been indications that the retail infrastructure would not be there. Well, yes, but it is true and we are taking our lumps on it, says Aurora Cannabis Inc.

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Chief Corporate Officer Cam Battley so. “As long as everyone else does too. And I don't just mean other manufacturers, analysts and observers across the board, I think, expected that there would be more retail infrastructure available now than it is. "

•" When it comes to profitability, and as Cam mentioned earlier, I don't think any of us on this call expect Ontario to sit in 24 stores a year after legalization, "said Aurora, Glen CFO Ibbott, in revenue.

Don't miss: Aurora scales expansion back into declining revenues

• "The adult cannabis market infrastructure is still in its early beginnings and is slowly developing," Cronos Group Inc.

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CEO Mike Gorenstein sa. "The number of retailers, as well as inventory and logistical needs is catching up to meet consumer demand. As a result, we are still unable to reach the long-term total addressable market represented by this population."

For a lot of weed, too little weed, nobody wants the weeds we grew

As recreational legalization has rolled out, supply problems have diminished to some extent, according to Tilray & # 39; s Kennedy, high quality marijuana flowers are still relatively difficult to obtain in the open market bulk, and there is a lack of high demand strains and products. This is not always the case: Sundial Growers Inc.

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said under revenue in the third quarter that it processed about 3 tonnes of a strain for oil because it had grown too much for what was in demand. And cannabis oil products don't sell anywhere near the amount some companies thought consumers would buy.

• “Some LPs, including ourselves, we put a product aside for 2.0, and get ready for this derivatives market, if you will, it's the higher value market,” says Aurora CEO Terry Booth. Some of our high-cost areas [products] were not so accessible to these provinces, because we saved it and retrieved it, and we make pens and rubbers and cookies and stuff, to be available for 2.0. "

•" Although we are optimistic that we will begin to see a more even supply of organic biomass come online, the overall industry supply of dried cannabis stock has hit record highs, "MediPharm Labs Corp. has said.

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CEO Patrick McCutcheon said.

• “MediPharm is probably one of the largest buyers of cannabis wholesale in Canada. So we really come in to the costs in general for that wholesale price, we've seen that month-over-month declines are some of that pricing, mostly based on deals. But as a high quality manufacturer, we are also focused on high quality flowers. So that fall would not be as significant as in the entire industry, "said MediPharm President Keith Strachan.

•" In the summer, the provinces clung to the offer that was available and stocked their shelves to the limits, "said Booth's CEO Bo Aur." And that might have been a good idea in their minds, because they won't have supply problems to retailers anymore, but it also affected the next quarter where they didn't buy as much. "

•" Supply -Demand is a little difficult because There are so many subcategories of the products. So I want to say that we come close to the balance between supply and demand of low-quality and low-strength by-products. But for high-end products and products that consumers want, there just isn't enough supply, ”said Tilray CFO Mark Castaneda. "I think we will see the same thing in the 2.0 products, especially as we start to go. It will be quite clumsy as people increase production processes, but maybe within a year we can be in a good balance between supply and demand, at least in Canada. ”

See also: Tilray sells five times as much pot, but the losses are extended

•" One of the reasons we enjoyed having an indoor plant is – the first major plant we built is the opportunity to have freedom of choice and to be able to swing from cultivation to downstream production, "said Cronos CEO Gorenstein." I think that when we look ahead and the fact that right now it is – because of the number of stores, we believe that it's headwind when it comes to oversupply, it makes sense for us to really take this as a perfect opportunity to start converting for more in-house derivative products. ”

The illegal market

The illegal market for weeds in Canada is still booming. According to Statistics Canada, about 29% of all cannabis consumers in the country get weed from a legal source.

• “Now we are going to add a number of different product lines to really fulfill the mandate of the Trudeau government and the UN Convention when you legalize cannabis, you have to show that you are going to compete with it or reduce the gray market, says Aurora CEO Booth. "This 2.0 will do it, and it will allow retailers to do better, it will increase sales of high value products, and it will bring in more users already in the system, but who still choose to go to the gray market. "

•" There is sufficient supply for an organized store rollout to happen now as it did in Alberta last year, and until this happens, the cannabis sector cannot reach its full sales potential and can "Don't convert consumers from the illegal market into the legal market," said Canopy CEO Zekulin. That said, stores will open, Cannabis 2.0 product launches will come and the size of the price will continue to materialize for Canopy because we have strength, resources and builds to withstand the short-term storm. "

Whoa, whoa, whoa … What about Europe?

Cannabis companies in Canada have been talking about their global ambitions for years, in part because Canada's population of about 38 million people makes it a relatively small market. Weed companies both large and small have expanded or established operations in Africa, Asia, Central and South America, and often talk about the opportunities. With a population of more than 500 million, the EU is a huge potential market, and medical marijuana in Germany is an early premium, but is another example of a market that weed suppliers have often cited but have not yet shown financial gains from it.

• "In Europe, I believe what we see – and again this goes back to my comment on guidance – and why we hesitate to provide guidance on this point, much of it is certainly driven by regulation," said Crono's CEO Gorenstein.

For more: Cronos gets lower after kicking off cannabis revenue with revenue loss

• "As I mentioned earlier, we expect to increase our exports from the EU campus soon," said Tilray CEO Kennedy. "… Our processing capacity is greater than our cultivation capacity, so we have ample runway to grow, scale and prepare finished products with third-party raw materials in addition to our own cultivation capacity."

• " Proving and earning GMP status and keeping it updated will be the next game changer for MediPharm Labs, says CEO McCutcheon. "It will unlock high-margin sales opportunities across legitimate global markets, including in Asia, and major consumer jurisdictions in Europe. We have a growing portfolio of licenses, which already places stringent requirements on our manufacturing process."

• "We expect higher growth in our international markets," Aurora Ibbot, CFO, said in the conference call. "And over the last quarter, I have adjusted strains under cultivation at our GMP plants for the EU to better meet the needs of European markets. We have also increased sales force in Germany and believe we continue to have the leading market share of natural medical cannabis. ”

Read all of MarketWatch's cannabis coverage here

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