By Max A. Cherney
For the big cannabis companies, this week did not mean frenetic activity but business as usual--and it's too early to count up sales
TORONTO--The final sprint to this week's launch of legal recreational marijuana sales in Canada can be summed up by a small stamp.
To sell any marijuana product in Canada, the government requires a tax stamp on the package, but the stamps are only available from a single licensed vendor, the Canadian Bank Note Company Ltd., or CBNC. Once the pot producers dealt with CBNC to receive their stamps, they were likely dismayed to find that the stamps had no glue on them -- and there was only one company in Canada that could affix glue to the stamps.
"If you didn't book your time six months ago with the one company in Canada that puts the glue on them, then you're in trouble," Tilray Inc. Chief Executive Brendan Kennedy told MarketWatch. "I don't even know what you do."
MarketWatch was unable to determine the extent to which this potential bottleneck impacted widely reported retail shortages around the country, but it is emblematic of the difficulties of transforming a black market into a nationwide industry that now raises capital via initial public offerings. While there didn't seem to be massive, unexpected problems in the opening days of legal marijuana sales in the first G-7 nation to legalize the drug, it was difficult to determine whether the still fragile distribution network has been able to keep pace with demand.
For the biggest pot companies, the first week of legal sales didn't involve frenetic activity from executives managing inventory, making allocation decisions or attempting to optimize sales. Because of how the regulations are structured, executives from Tilray and Cronos Group Inc.(CRON.T)(CRON.T) told MarketWatch that it was more or less business as usual -- too early even for feedback on products sold online or in retail outlets.
To see all of MarketWatch's coverage of Canada legalization, click here (http://www.marketwatch.com/topics/columns/cannabis-watch).
"It's six months (from) when you plant a seed to when you ship it to the [Ontario Cannabis Store] if everything is perfect, if everything is spot on," Tilray's Kennedy said. "So there's not a whole lot I can do today, it just wouldn't make much of a difference. Were we frantic six months ago? Yes. And certainly there were spots along the way where we had to do things in order to be prepared."
In Ontario, Canada's most populous province, three sources with knowledge of sales told MarketWatch that the province's online store -- the only way to legally buy weed there, since it will not allow retail sales until next year -- had run out of product on Wednesday, the first day of sales. But Ontario Cannabis Store spokesman Daffyd Roderick said over the phone Thursday morning that there was plenty of supply remaining. Roderick declined to allow MarketWatch to interview executives at the OCS, nor provide sales figures for the first several days of sales.
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"The OCS will not be releasing statistics at this time," he wrote in an emailed statement. "We will say that the response to cannabis legalization has resulted in a high volume of orders."
Complicating matters for Ontario and other provinces operating online retail operations is the threat of a strike by workers at Canada Post, the country's post office, which is shipping and delivering the vast majority of legal weed at the moment. And the bricks-and-mortar retail locations will not open until April at the earliest, according to previous statements from the Ontario government.
"Ontario should have allowed retail to be open the same day," said Corey Herscu, chief executive of RNMKR PR, which specializes in cannabis communications. "They lost a really good chance to do it right, to set a benchmark. I think there could have been a lot of good ways to show other countries how Canada can lead."
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Some provinces, such as Nova Scotia, released Oct. 17 sales figures, ahead of the usual quarterly release for the province's government-run liquor stores, which now also sell cannabis. Spokeswoman Beverley Ware said over the phone Nova Scotia had sold more than 600,000 Canadian dollars ($457,000) worth of pot the first day, and stores in major metro areas continued to see lines out the door through the third day of legal sales.
"The first online customers have received their orders," she said Friday, adding many customers did so the next day.
But Nova Scotia was having trouble obtaining pot. Of the 3.75 million grams provincial buyers ordered, Nova Scotia actually received less than 40% from the licensed producers. The stores are out of gel capsules and oils altogether -- because they got small amounts to begin with, Ware says -- and was seeing shortages with small packages of pot and pre-rolled joints.
Alberta's retail locations, which are operated by private entities, were suffering from supply shortages too. Reached by telephone late Friday, Alcanna Inc. (CLIQ.T) Chief Executive James Burns said that for the company's first orders for the five retail stores it currently has open in Alberta, it too received about 40% of the desired amount of product. The first order was 10 days before Oct. 17, and the company put its second order in Wednesday, which it expects will arrive sometime today or early next week.
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Demand has been above expectations and the company plans to open many more retail locations, Burns says.
"I was surprised," he said. "We knew there would be a big rush on Wednesday but we didn't expect it to continue Thursday and Friday. Our stores are going full tilt 10 a.m. to 10 p.m., Saturday is going to be exactly the same, and we didn't think it would last this long."
Burns added that after Wednesday, there were more women and seniors shopping. Even though demand has been greater than expected, operations have gone smoothly, he said.
"We had 230 stores on Tuesday," Burns said, referring to the liquor stores it operates. "We had 235 Wednesday. [Legalization] is a big deal, but it's (also) not a big deal."
While determining initial sales is difficult, Canada-based Shopify Inc.(SHOP) -- which helps run provincial online sites in Ontario, British Columbia, Newfoundland, and Prince Edward Island, as well as retail locations operated by Canopy Growth Corp. (WEED.T) (WEED.T) , among others -- was able to quantify huge demand for the newly available legal drug. A spokeswoman said that the company was processing "over 100 transactions per minute" across the country and expects millions of orders within the first week of legalization.
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Despite the difficulty some had obtaining cannabis on Oct. 17, there were no shortage of celebrations. There were industry events across Toronto that included several of the big pot companies. At one party sponsored by Leafly, pot enthusiasts, industry leaders and others gathered to watch a large artificial marijuana flower drop from the ceiling at midnight. Security was tight at the event, and just like the other celebrations, it didn't feature cannabis consumption, at least officially.
Enthusiasts gathered for a "smoke out" at a large park called Trinity-Bellwoods near the center of the city. At around 4:20 p.m. Eastern time on Wednesday, a crowd of at least one hundred gathered in light rain to commemorate the day, including someone dressed in a kangaroo costume brandishing an oversize fake joint.
The revelers smoked joints, used vapes and bongs with no visible police presence. While it was a celebration of the first day of legal marijuana sales in Canada, few remarked on the fact that the pot they were smoking had to have been obtained illegally, since the online store in Ontario had not begun actually delivering yet.
-Max A. Cherney; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
October 22, 2018 07:09 ET (11:09 GMT)
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