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It's dope, man: Pot sales expected to double on 'special day' in April

Apr 14 2019 20:00
Kristine Owram, Bloomberg

Cannabis retailers should prepare themselves for a minimum doubling of sales on April 20, the stoner’s Fourth of July, according to new data.

The origins of 4/20 are obscure, but the most common story is about a group of 1970s high-school students who’d meet outside their school at 16:20 to search for a legendary abandoned marijuana crop (which, needless to say, they never found). Whatever its source, 4/20 has become the busiest cannabis sales day of the year, according to data provider Headset.

It was the industry’s single biggest day of sales in 2018, with sales up 111% compared with the four Fridays before and after the holiday, according to Headset, which compiled sales data from Washington state, California, Nevada and Colorado.

By comparison, beer sales during the two-week period including July 4 were up 33% versus an average two weeks in 2018, according to Nielsen, which has partnered with Headset to analyse the US legal pot market for consumer packaged-goods companies.

Sales on April 20 don’t appear to be affected by the maturity of the legal market. Each of the four states examined by Headset saw sales at least double last year, when the celebration fell on a Friday, typically the busiest sales day of the week.

With April 20 falling on a Saturday this year during the Easter long weekend, retailers should prepare themselves for a rush of customers on both Saturday and “4/20 Eve,” Headset said.

This will also mark Canada’s first April 20 since the country legalised recreational pot last October. Retailers may find it difficult to achieve the same jump in sales as their US counterparts due to the ongoing supply shortages that have plagued the legal market. There will undoubtedly be long lineups, especially in under-retailed cities like Toronto, which currently only has two legal stores to serve its population of nearly 3 million.

Earnings Outlook 'far too high'

There'll be further insight into legal sales from two Canadian producers this week, with Aphria and Organigram scheduled to release results Monday for the quarter ended February 28. Analysts expect the companies to report revenue of C$83 million ($62 million) and C$24 million respectively, according to data compiled by Bloomberg.

It may be time to significantly lower expectations for the sector as a whole, according to Scotiabank analysts Oliver Rowe and Ben Isaacson, who published a note last week saying first-quarter estimates are “far too high”.

The analysts expect aggregate revenue in the calendar first quarter to come in below fourth-quarter results, while the Street as a whole is looking for a 35% increase. They also expect total cannabis sales volumes to fall by 25% quarter-over-quarter due to a dearth of new stores.

As a result, investors should brace themselves for “some companies trading sharply lower on earnings day,” they said. One outlier may be Moncton, New Brunswick-based Organigram due to its strong inventory position. “This could translate into substantial sales in the coming quarter which may come as a surprise for a sector that should generally disappoint.”

Despite flying under the radar compared to its larger, higher-profile peers, Organigram has turned into an analyst darling. The stock has 10 buys, no holds and no sells and a 12-month price target of C$11, about 20% above current levels, according to data compiled by Bloomberg.

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