Major Growth in Canada’s Cannabis Vape and Concentrate Sales
Robin Lefferts
March 29th, 2021
News, Top Story
By now, most observers of the cannabis industry are familiar with the terms describing the various stages of industry development – Cannabis 1.0, Cannabis 2.0, Cannabis 3.7, etc. Whichever stage we are in according to the various definitions, most would agree there are very real growth opportunities as the industry matures. Deciphering which companies are succeeding in the highest growth sectors could be a key to identifying solid cannabis investment opportunities. In Canada, one of the highest growth areas is the sales of derivative products like concentrates and vape cartridges, and Decibel Cannabis Company Inc. (TSX-V: DB) (OTCQB: DBCCF) is making a big splash in key markets across the country. Let’s take a look at the trends.
Extracts on the Rise
Health Canada provides monthly sales statistics for all cannabis products in the country. Medical sales have remained fairly stable over the last year or two, while adult use or non-medical sales have been increasing since legalization in 2018 (and the subsequent introduction of derivative products in October 2019). Below is a chart looking at dried flower and extract sales figures for the 2020 calendar year. Statistics for December 2020 are not available at this time.
For whatever reason, November sales dipped slightly across the board. Assuming that was some sort of blip in the overall trend, we calculated the compounded annual growth rate (CAGR) for the ‘year’ using October as an endpoint. CAGR for flower sales comes out to 22.8%, while extract sales ends up at 151.7%. Some caveats apply here, notably the fact that extracts were more recently introduced. However, the growth in extract sales is striking.
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Comparing Canada’s sales trends to those of the more mature U.S. market may be informative. According to LeafLink, a US-based wholesale marketplace and data provider, cartridges and concentrates accounted for about 40% of all sales in 2020. This is comparable to the approximately 40% market share of flower and pre-rolls combined. With Canada showing cartridges and concentrates comprising 16% of sales currently in a much younger market, there appears to be significant room for growth in the product category.
Decibel’s Rise
At the end of 2019, Westleaf Inc. merged with We Grow B.C. Ltd to form what is now the Decibel Cannabis Company. Westleaf was publicly traded and featured an award-winning retail chain (Prairie Records), a state-of-the-art extraction and production facility (The Plant), and a cultivation facility that has now been licensed (Thunderchild Cultivation). We Grow was private and featured a cultivation facility (The Qwest Estate), a leading premium cannabis brand (Qwest), and an extensive library of craft cannabis genetics.
Decibel is focused on profitability, having achieved positive adjusted EBITDA in its first year. Unlike many other companies in the space, however, the company has not had to raise equity financing over the last year to achieve its objectives. Decibel combines expertise in cultivation, production, retail, and finance to guide its growth strategy.
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A major component of that strategy is to establish and expand market share for its concentrate and cartridge products. Since September 2020, Decibel has launched 26 vape and concentrate products into five provinces. In January, across British Columbia, Alberta, and Saskatchewan, Decibel products hit #1 in concentrate sales and #3 in vape sales. In the first month in Ontario, the company achieved #3 in concentrate sales and #8 in vape sales. Decibel plans to launch another 30 SKUs in these categories over the coming quarters, looking to expand its impressive market shares of 9% vapes and 22% concentrates in those provinces.
Decibel’s premium flower brand, Qwest, is differentiated in large part by the company’s diverse genetic portfolio. The company is looking to achieve the same success in vapes and concentrates by parlaying those genetics into unique next generation products. Extracts based on proprietary cannabinoid and terpene profiles form the basis for products that are manufactured in-house through its state-of-the-art production facility. Importantly, these products are tested with consumers on a smaller scale through its own retail outlets, allowing Decibel to refine and perfect them before rolling them out on a larger scale.
The Results
The approach seems to be working. Proof lies in the quick success of Decibel’s derived products as noted above, complementing the company’s more established premium flower lines. Further evidence can be found in the company’s financial results, with Q3 2020 showing an increase of 29% in net revenue over the prior quarter, following a 17% increase in Q2 over Q1. Decibel has been able to manage its bottom line very well through this growth, reporting its first positive adjusted EBITDA of $860,000 in Q3. Q4 results will be especially interesting as it will be the first full quarter of the company’s derivative sales.
Positive EBITDA is not too common in an industry characterized by huge expansion costs and limited return on investment. As the cannabis market matures through Cannabis 2.0 to bigger and better stages of development, smart and well-run companies will inevitably rise to the top. Interested investors would do well to track Decibel over the coming quarters as it expands its reach in the highest growth sectors and looks to build on its early successes.
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The above article is sponsored content. CannabisFN.com and CFN Media, have been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: https://cannabisfn.com/legal-disclaimer/
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
About Robin Lefferts
Robin Lefferts has been involved in the legal cannabis industry since 2012, sometimes as an active participant and always as an interested observer.
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