'Far less' pot available across Canada than expected, Tilray says

TORONTO - B.C.-based cannabis producer Tilray Inc. says product has been selling out in the first few weeks of legalization and while it has explored buying wholesale to bridge the supply gap, there is “far less” pot available than expected.

Despite companies touting large production capacities over the past year, upon inspection there was less pot available and a lack of high quality product up for grabs, said the Nanaimo-based president and chief executive officer Brendan Kennedy.

“People tended to exaggerate their capacity and tended to exaggerate the metric tonnes that they were going to be producing... Both of those things have been very surprising,” he said on a call with analysts Tuesday to discuss the company's third-quarter earnings.

Tilray's comments come after Canada legalized cannabis for adult use on Oct. 17 - becoming the second country to do so after Uruguay - and product shortages continue to loom at bricks-and-mortar stores and online.

Some government entities responsible for the sales and distribution of adult-use cannabis in various provinces have said they are receiving less product than expected and have warned that these shortages could last for months. Tilray has signed agreements to supply recreational pot to eight provinces and territories.

“With the imbalance we have today, with more demand than supply, everything is selling out,” Mark Castaneda, Tilray's chief financial officer told analysts on the conference call.

Another factor complicating the product shortages at government and territorial distributors was the timing of licences, the company said.

At the end of the quarter, Crown corporations didn't have licences to receive packaged products, he said.

Tilray did not make any shipments of recreational cannabis during its latest quarter, ended Sept. 30, Kennedy said.

Still, the cannabis producer reported an 85-per-cent jump in revenue year-over-year to US$10 million, driven by increased patient demand, bulk sales to other licensed producers, and accelerated wholesale distribution in export markets.

However, Tilray posted a wider net loss of US$18.7 million during the quarter, compared with US$1.8 million during the same period a year ago, as it ramped up for legalization and expanded its global operations.

Analysts had expected revenues of US$10.1 million and a loss of US$12.7 million, according to Thomson Reuters Eikon.

The marijuana producer, which has a market capitalization of roughly US$10.2 billion, said the higher net loss was due to higher operating expenses related to growth and international expansion.

Tilray says other factors driving up its net loss include costs related to financing and its initial public offering on the Nasdaq in July.

The company's average net selling price was US$6.21 per gram in the quarter, down from US$7.53 during the same period a year ago, primarily due to an increase in bulk sales as a percentage of total revenue.

Tilray's results come as Toronto-based cannabis producers Cronos Group Inc. and The Green Organic Dutchman Holdings also reported losses during the third-quarter.

Cronos reported quarterly revenues of $3.8 million, up from $1.3 million a year earlier, but posted a net loss of $7.3 million for the period.

Meanwhile, The Green Organic Dutchman reported no revenues but incurred a net loss of $11.3 million as expands its operations, including construction of facilities in Ontario and Quebec.

Tilray is at the “early stages” of its growth potential, said Kennedy, pointing to the sales of its products in 12 countries.

Another upcoming bright spot is sales of its products in Canadian pharmacies in the near future, he said.

The pharmacy industry has been positioning itself to distribute medical cannabis, with the Canadian Pharmacists Association saying that pharmacies should play a leading role in the drug's distribution.

Health Canada said recently in a consultation paper that it intends to work with the provinces and territories and the National Association of Pharmacy Regulatory authorities on options to control the sale and display of cannabis to youth, which could include controlling them behind the counter at pharmacies.

Meanwhile, pharmaceutical company Sandoz Canada, with which Tilray has a partnership for branded products, has been advocating for pharmacies to play a role in the distribution of cannabis.

Kennedy said this will happen “fairly soon.”

“That will be interesting to see in a place like Ontario where there aren't retail stores open, but you may see products, Tilray products in physical pharmacies.”