Cash Flow Chronicles: Analyst Dissects Canadian Cannabis Balance Sheets, Market Trends Vs. The US

Benzinga recently reviewed the balance sheet and cash flow trends of Canadian LPs (licensed producers).

Zuanic & Associates presents crucial factual key findings:

• StatCan (official government source) reported May cannabis retail sales (rec) of $415.6Mn, up 1.2% MoM, and -2.1% in day-adjusted terms.
• In yoy terms, May sales were up 11%. YTD sales thru May are up 12% yoy, which is above the US yoy growth rate of 9%, but below Canada’s growth pace of 17% in CY22.
• Recreational consumption in Canada is around US$100 per person — much lower than even the less matured U.S. states that legalized recreational use after Canada.

Category Trends

Within the Canadian cannabis market, different product formats experienced varying levels of performance.

• Notably, flower sales decreased over time, now accounting for 39% of total sales (compared to 43% in Q2 of 2022 and 60% in Q2 of 2020).
• Pre-rolls (+23% YoY) and vape (+18%) outperformed other formats.
• Edibles (+17% YoY) and concentrates (+26% YoY) also saw positive growth
• Oils (-12% YoY) and beverages (-4% YoY) declined.
• Topicals remained largely unchanged and accounted for only 0.3% of sales.

Cash Flow and Balance Sheet Trends

Only three out of the 17 Canadian companies reviewed showed positive operating cash flow (OCF) in 2022, including Decibel DBCCF, High Tide HITI and Rubicon ROMJF.

Most companies displayed improving trends, but still posted negative operating cash flow.

The report also highlights the disparity between positive EBITDA and positive OCF. While 12 companies reported positive EBITDA in Q1 of 2023, only seven had positive OCF.

Companies with high net debt-to-sales ratios — e.g., Auxly CBWTF, Canopy Growth CGC, and HEXO Corp. HEXO — could face challenges if cash flow trends don't improve.

LP Performance

Among the Canadian LPs, Tilray TLRY, including HEXO, held the largest market share at 12.1% in Q2 of 2023. After that:

• Decibel ranked second with a 7.5% share
• Village Farms International VFF at 6.4%, showing a 15% year-on-year sales increase, mainly propelled by the flower segment, which now accounts for over 80% of sales.
• Organigram OGI touts a 6.1% share, but saw an 11% year-on-year decline in sales in Q2 of 2023
• Auxly at 5.2%
• BZAM at 4.4%, faced a 9% sequential sales drop in Q2, with flowers, vapes, and pre-rolls as significant components of their sales mix.
• Cronos CRON also held a 4.4% share, witnessing a 4% sales increase in Q2
• SNDL SNDL held a 2.9% share, witnessing a 7% sequential sales decline in Q2 of 2023 after the Valens deal.
• Aurora ACB had a 2.2% share, maintaining flat sequential sales growth in Q2 and showing a pivot towards more premium lines, resulting in a higher average flower price compared to peers.

Are you interested in learning more about the performance of key cannabis companies and markets? Join us at the Benzinga Cannabis Capital Conference in Chicago on September 27 and 28, where you'll meet experts in market research and discover new investment opportunities. This is your chance to gain insights into equity, cash flows, balance sheets, fundamentals, and key metrics, ensuring you don't miss out on the thriving opportunities in the cannabis industry.

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Photo: Pablo Zuanic - Cannabis Sector Equity Analyst - (Janon Stock on Shutterstock and 420Odysseus on Twitter).