Doors to the recreational cannabis market opened on October 17th, and it’ll take a little more time before we see how companies did in their first quarters post-legalization. However, we have had glimpses so far as to how well things have been going.
According to Statistics Canada, sales totaled $43 million in just the following two weeks after legalization. That’s a pretty significant number for only two weeks and with many provinces not being entirely up and running just yet. At that run rate, it would equate to over $1.1 billion in sales for a full year. However, that’s still likely a very low figure given that shops aren’t setup in every province and it hasn’t been a smooth roll out by any means.
Why the results are likely skewed
Ontario and Quebec saw the most sales during those first two weeks of legalization, generating $11 million and $10 million, respectively. With $1.4 million in sales coming from Prince Edward Island and just $341,000 from Saskatchewan, it’s easy to see that this sample is by no means a reliable one. It won’t be until we see pot shops up and running that we get a good indicator of just how strong sales are. And as easy as online ordering may be, many consumers are likely hesitant about buying weed with their credit cards.
Another way to gauge the results is by looking at earnings reports. Hexo Corp (TSX:HEXO) recently released its quarterly results, which did include a few weeks worth of recreational sales. Of the $6.7 million that the company generated during the quarter, $5.2 million of it came from the last two weeks of October, after legalization. It’s an incredible boost and could be a sign of things to come for other pot stocks.
On the flip side, these numbers are also likely stronger than normal. The first two weeks of legalization would have seen a lot of fanfare and excitement surrounding cannabis, and it likely inflated the results significantly. As we get more numbers we’ll get a more realistic picture of what sales might look like for a full year. When looking at just two weeks, unfortunately there’s a lot of noise and room for data to be skewed.
Is this good news for pot stocks?
While the sales are an encouraging sign, it doesn’t mean pot stocks will start taking off. We saw Canopy Growth Corp (TSX:WEED)(NYSE:CGC) crash in its last quarter after badly missing sales estimates. The problem is that many stocks have been priced with the expectation that recreational sales will result in astronomic growth levels, and if that doesn’t happen, stock prices will incur corrections.
The expectation always was that sales should be strong, so it’s a matter of how closely the forecasts match reality.
Overall, the early results are promising and once all the issues are sorted out, sales could be even stronger. The problem is that it might take some time for that to happen. Ontario, for instance, might not hit its peak until after April when pot shops finally start opening up. Many other provinces are also nowhere near optimal levels.