Canopy Growth pushed back the launch of its highly anticipated "Cannabis 2.0" beverage products on Friday, missing a target date range the company's management set for itself just last month. The move likely hasn't reassured shaken investors looking for better communication and more transparency from cannabis companies heading into 2020.
"Canopy has had seven weeks to work with THC in the brand new beverage facility to scale processes and IP it has developed in the R&D environment," David Klein, Canopy Growth CEO, said in a statement. "In order to deliver products that meet our customer's high standards we are electing to revise the launch date while we work through the final details."
Ontario Cannabis Store (OCS), the only legal online retail in the populous province, kicked off Cannabis 2.0 Thursday, debuting cannabis vapes and edibles products on its site that morning. New form factors like gummies and chocolates, officially legalized in October as part of Canada's highly anticipated second wave of cannabis, had already hit brick and mortar retail shops, but that didn't seem to temper demand online. OCS' digital inventory of infused soft chews sold out within the first half hour, an OCS spokesperson said. Anxious shoppers had bought up all edible products by 2 p.m., although several vape cartridges and accessories were still in stock as of Friday morning.
"OCS.ca will only be replenished after the retail stores have each been allotted an equal share of available product," Daffyd Roderick, director of communications at OCS, wrote in an email, adding that "we know the licensed producers are working hard to make more products available and we’re confident that these growing pains will be moved through in relatively short order."
Cowen's Vivian Azer wrote in a Friday note that although not much was known about OCS' inventory levels, the rapid sellout bodes well for consumer demand for new form factors like edibles, and eventually beverages.
"We are interested to see demand for the beverage category once cannabis-infused [ready to drink beverages] become available," she wrote.
Canopy Growth had two edibles products available on OCS' website Thursday, according to Cowen. But, per the company's Friday announcement, ready-to-drink beverages won't be coming quite yet, in spite of pledges from company management as recently as December. Canopy said in a December 6 press release that some Tweed- and Houseplant-branded beverages would hit shelves in "early January 2020" with additional beverage offerings from Tweed, Quatreau, and Deep Space brands to come in the later weeks of January and distilled spirits products launching in February.
Jefferies analyst Owen Bennett called the last minute update "poor for sentiment" in a note, published on Friday.
"There appears no excuse for this announcement, with the delay caused by lack of clarity internally rather than unforeseen external factors, which is even more worrying. Though we criticized Tilray for a similar announcement on THC-bevs, in their support, this was back in October, and in comparison shows either greater internal control, or a greater willingness to communicate this to the market," he wrote.
Indeed, cannabis companies have been criticized for failing to cultivate trust and communicate adequately with investors. In November, several law firms launched investigations into Aurora Cannabis ($ACB) over potential securities violations concerning steep revenue declines and lack of transparency around decisions like halting construction on key cultivation facilities. The investigations have resulted in several class action law suits, alleging the company failed to communicate, or in some cases, intentionally misled investors. Despite the pressure, Aurora came under fire again in early January for failing to communicate with investors concerning the sales listing of a cultivation facility in Exeter, Ontario.
"One of the issues in the cannabis space at the moment, and which has contributed to the sell-off over the last 12 months, is a lack of trust in companies by the market on the back of missed estimates, withdrawn guidance, and going back on public commitments. To this, today's update will not help Canopy's cause," Bennett added.
In spite of Canopy's Friday disclosure, shares were up about 2 percent in intraday trading.
Investors and the industry are banking heavily on the next wave of Canadian cannabis legalization to turn things around in a market that came up short in its first year. The sales of higher margin products promises to increase sales, appeal to new demographics of users, and attract consumers accustomed to purchasing on the illicit market. Investors will be watching closely to see whether new cannabis form factors fall prey to similar growing pains as challenged the sector in 2019.