Canopy Growth Corp CEO says company can win against the black market

Is the black market an unseen force that will forever drag down the price per gram commanded by Licensed Producers? Far from it, says the CEO of the world’s largest pot play, Canopy Growth Corp. (Canopy Growth Stock Quote, Chart, News: TSX:WEED).

Canopy boss Bruce Linton was on BNN Tuesday, where he sat down for a wide-ranging interview with Business Day’s Catherine Murray. Murray queried Linton about the company’s recent second quarter results, which saw the company lose $1.61-million on revenue of $17.6-million, a topline that was up 107 per cent over the same period last year. In particular Murray was interested in trends related to the company’s cost per gram, a hot topic with analysts covering the stock.

Canopy reported that its weighted average cost-per-gram before shipping and fulfilment was $1.25 per gram as compared with $1.27 per gram in the first quarter of this fiscal year. The company noted that its average sell price-per-gram was $7.98.

Linton says he sees a trend in which, as regulations ease regarding the value-add of cannabis related products such as oils and edibles, the prices the company can charge will rise.

“What drives the average selling price isn’t a function of just competition, it’a actually going up because as you make more sophisticated formats of the product, rather than selling you a dried cannabis flower, if I sell you oils extracted that’s a little better,” Linton explained. “Now, if I take those oils and I put them into an exact milligrams per millilitre soft gel, pharmaceutical-grade production of our product the price goes higher per gram.

Linton says the black market, or buying weed from a guy in a “puffy coat” will actually have a hard time competing against a high-quality, home-delivered product.

“I think what you are going to find with this sector is as we are alloweed to compete more and more with the black market, making vaporizable products, liquid infused products -things that people see as a finished good rather than an ingredient- the average price per gram will go up,” he said.

Linton told Murray that when the recreational market opens up he sees the average price per gram settling somewhere in the ten dollar mark, a price he estimates to be about two dollars less than the illegal product.