In February, $265.4 million of recreational cannabis products were sold in Canada, approx. 3% less than the amount that was  sold in January. 

The data comes after a few Canadian Licensed Producers (LPs)  reported quarterly financial results for the period that ended on December 31, 2021. We consider this to be a bearish indicator for Canadian LPs and will monitor how the sector continues to perform. (Technical 420)

So far, 2022 has been a challenging year for the Canadian cannabis industry. The cannabis 2.0 and pre-roll verticals have been two of the best performing markets for the Canadian sector and operators with leverage to these products have outperformed their peers (from a total revenue standpoint).

According to cannabis data firm Headset, pre-roll sales increased by 96% between 2020 and 2021 to approx. $460 million (USD). The firm reported a 69% increase in the number of units that were sold during this period and we will monitor the performance of the vertical on a going forward basis. 

Auxly Cannabis Group (TSX: XLY) (OTC: CBWTF) is highly levered to the pre-roll market in Canada which played a key role in the revenue growth the company recorded in 2021. We are impressed with the Canadian LP’s ability to capitalize on the vertical and will monitor how it contributes to growth in future years. 

Indiva Limited (TSX Venture: NDVA) (OTC: NDVAF) recently reported quarterly financial results and benefited from being highly levered to the cannabis 2.0 market in Canada. This vertical includes product like edibles, beverages, vape pens, concentrates, more. We are favorable on Indiva’s ability to capitalize on this burgeoning vertical by forming strategic partnerships with high-profile US cannabis brands and expect the business to continue to report growth due to its focus on this market. 

During the last year, there has been a major shift in the Canadian cannabis market and operators with leverage to certain verticals have performed better than their competitors. Due to this trend, larger scale Canadian LPs like Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) have made bolt-on acquisitions to enhance its leverage to high-growth markets in Canada and we expect to see more M&A in the back half of 2022. (Click here to view entire article)