Revenues at Cannabis Startups Surge as Demand Begins to Outstrip Supply

Three of the largest cannabis companies reported earnings this week, painting a portrait of a nascent industry enjoying surging demand as recreational pot becomes legalized in more places—but they’re also encountering some growing pains.

Aurora Cannabis said Monday its revenue rose 260% to $ 29.7 million Canadian dollars (US$ 22 million). Net income came in at C$ 105.5 million, up from C$ 3.56 million a year ago, largely because of unrealized gains on securities.

On Tuesday, Tilray said revenue rose 86% to C$ 10 million, while its net loss increased to C$ 19 million from C$ 1.8 million a year ago, driven largely by an increase in non-cash stock-based compensation charges.

Also on Tuesday, Cronos Group said revenue in the third quarter rose 186% to C$ 3.8 million, compared with C$ 1.3 million a year ago. Cronos lost 4 Canadian cents per share.

Both Tilray and Cronos said that the average price of weed per gram declined. Tilray attributed the decline to an increase in bulk sales as a percentage of total revenue.

However, the price of cannabis could increase in the future because demand is beginning to outstrip supply as Canada and many U.S. states have legalized marijuana. Much of the cannabis sales the three companies reported last quarter came from medicinal marijuana.

“Similar to other Canadian LPs, we are facing demand that outstrips supply,” Aurora’s chief corporate officer Cam Battley said during the company’s earnings conference call. “We anticipate this dynamic to continue for some time.”

Cannabis stocks surged through most of 2018 before encountering a selloff, once pot became legal in Canada, in a classic buy-on-rumor, sell-on-news scenario. Investors appear to be remaining cautious, despite the strong revenue growth last quarter. On Tuesday, Aurora’s stock on the NYSE fell 3.7%, while TIlray fell 1.9% and Cronos fell 1.7%.