Article by Vanmala Subramaniam, Financial Post
Cannabis retailers in parts of the country say they are struggling to sell Canopy Growth Corp.’s Tweed-branded oils and gel capsules, resulting in a glut of unsold inventory and raising the tricky question of how to handle returns in the nascent cannabis industry.
“They are just not selling. We have been talking to Canopy for some time now about the issues with their oils and gel capsules. They have known for months that most of the retailers are having problems selling them,” said Mark Goliger, chief executive of National Access Cannabis, a recreational cannabis retailer with 35 stores in Alberta, Saskatchewan and Manitoba.
In its latest quarterly results, Canopy recorded a gross revenue adjustment of $8 million ($6.4 million after excise taxes), citing the risk of “oversupply of certain oil and gel-cap formats in certain markets.” In a conference call with investors and analysts Thursday morning, management acknowledged that although their adult-use oils and gel capsules had sold well initially, demand had been slipping of late.
“It’s normal course in business. We are always talking with retailers, looking at the mix of what they have and the mix of what we are preparing. That’s why we decided to take that $8 million provision,” said interim CEO and co-founder Mark Zekulin, who has led the company since former co-CEO Bruce Linton was fired in early July.
Canopy’s recreational revenue declined by 12 per cent this quarter, the second consecutive decline in quarter-over-quarter revenue from adult-use sales. Its overall market share in the adult-use segment also declined, dropping the company to second place behind Aurora Cannabis Inc.
Canopy’s stock closed down nearly 15 per cent on Thursday, following the release of the results.
Canopy did not disclose how much of their recreational cannabis revenue came from oils and gels, nor the quarter-over-quarter performance of those categories.
Gel capsules serve as a vehicle to consume diluted cannabis oil, and often function as safer alternatives to smoking or vaping dried cannabis flower. Cannabis-infused oils and gel capsules are typically used for pain relief, insomnia and anxiety but are also consumed recreationally.
One pot shop owner in the Greater Toronto Area, who asked not to be named for fear of damaging his relationship with Canopy, told the Financial Post that Tweed’s gel capsules were amongst the “worst-selling” cannabis products in his store, but also noted the store itself was partly to blame for the inventory backlog.
“The problem is, we ordered too much of it initially because we knew it was available and we just wanted to stock our shelves,” the owner said. “Our margins are going to take a hit because I have boxes of Tweed product — oils and gelcaps — sitting in my back office.”
He added that they had “no problem” selling dried cannabis flower from all of Canopy’s recreational brands.
While Goliger said that Canopy’s oils and gel capsules would eventually sell at the right price, the backlog is raising the issue of how retailers deals with returns and excess stock.