Canadian cannabis producers Tilray Inc and Aurora Cannabis Inc reported an increase in quarterly revenue last month, attributing the boost to increased demand. Canada was the first industrialized nation to legalize recreational cannabis in an effort to eliminate the black market, but continued growth in this industry is currently limited by lack of supply.
When looking at revenue, Tilray Inc, based in Nanaimo, British Columbia, reported $30.9 million (Canadian) in total revenue for the first quarter of 2019, which is 48% more than they reported from the last quarter in 2018. The company reported the price per gram fell from $5.94 last year, to $5.60 per gram in 2019.
Aurora Cannabis Inc, based in Edmonton, Alberta, said cannabis sales in the third quarter (ending March 31) rose to 9160 kg sold from 6,999 kg sold in the second quarter. The company also reported $65.1 million (Canadian) in total revenue for the same period, which is 20% more than they reported for 2018’s fourth quarter.
According to the Motley Fool, however, while top-line revenue growth reveals some details, it’s not the whole story. On May 19, the site noted that Tilray’s cost of goods was exceptionally high, resulting in a gross profit of just 23 percent of revenue, which calls into question Tilray’s current efficiency as a producer. Aurora Cannabis Inc reported a gross profit of 66% of revenue.
Tilray’s lackluster gross profit may be attributed to the supply and demand woes that states where cannabis is legal in the United States currently face. Tilray, as a result, had to source 26% of the cannabis it sold in the first quarter of 2019 from third parties, and that increased costs. To combat that in the future, Tilray acquired Natura Holdings, a large licensed producer, in February.
Aurora Cannabis Inc is increasing its own supply in-house, through the construction of a new 1.62 million square-foot facility, called Aurora Sun in Medicine Hat, Alberta. The company expects to start cultivation of 230,000 kilograms of cannabis at that facility by mid-2020.
This isn’t the first time supply and demand is out of whack in the cannabis industry. Issues are cropping up across multiple states in the United States and the Canadian provinces. Many issues stem from the regulatory framework as markets faces over-or-undersupply problems, but some states, like Colorado, are figuring out a balance.
Oregon is still trying to figure out how to regulate this area, as the state currently finds itself with a huge surplus of cannabis. Some statistics by the OLCC, Oregon’s regulating body for the state’s legal cannabis industry, claim that Oregon is sitting on over a million pounds of unsold cannabis. In an attempt to remedy this scenario, the OLCC is hitting pause on issuing new producer licenses.
Colorado, on the flip side, seems to be figuring out the sweet spot, and a state-commissioned study found that many growers were planting less than half the cannabis they were legally allowed to grow, while still meeting market demand. Despite Oregon’s attempts at regulation and Colorado’s supply and demand equilibrium, retail prices for flower in both Oregon and Colorado have dropped by about half since 2015.
Despite the discussions on pounds sold and a per-weight price, the current US market statistics on cannabis might be misleading. Recent market trends toward edibles, vape pens and topicals use oil extracted from flower, and growers are cultivating some crops specifically for oil production, which could partially explain the overproduction statistics and any marketplace price dips.
In the Canadian cannabis marketplace, however, Tilray’s Chief Executive Brendan Kennedy told Marketwatch.com in May that despite the company selling 3012 kilograms of cannabis (the equivalent to 6640 pounds of pot), the metrics are not reflective of actual market conditions. Kennedy predicts the weight of cannabis sold will become irrelevant to investors as other revenue streams, like edibles, becomes more popular, and the measurement metrics change.