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Oct 25, 2018

Shopify plots online cannabis-sales domination after Canada's debut

Shopify gains from legal cannabis

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Shopify Inc.’s (SHOP.N, SHOP.TO) market lead in Canadian online cannabis sales should give it a leg up as other countries begin to legalize the drug for medical and recreational use, Chief Executive Officer Tobias Lutke said.

The e-commerce company has proven it has an ideal product for regulated industries which require “nimbleness because compliance with laws is always changing,” Lutke said. “As more countries think about their own regulated industries, whether it’s cannabis or otherwise, we become that first phone call,” he said on the company’s third-quarter earnings call Thursday.

Shopify’s platform was widely adopted for online sales of recreational marijuana, which Canada legalized on Oct. 17. Government-run websites in several provinces including Ontario and British Columbia, as well as private companies like Canopy Growth Corp., Aurora Cannabis Inc. and Hexo Corp. use Shopify’s point-of-sale system.

The Ottawa-based company was praised for the fact that its websites didn’t crash on the first day of legalization, when demand was through the roof. The Ontario Cannabis Store, for example, saw 1.3 million unique visits in the first 24 hours and received approximately 100,000 orders.

Lutke added that Shopify designed its cannabis contracts so it will “capture the upside” of gross merchandise volume, or the total amount of sales made by vendors using its platform.

Shopify rose 6 per cent at 10:25 a.m. in New York after surging as much as 13 per cent, the most intraday since August 2017. The company boosted its full-year revenue guidance and reported third-quarter results that beat expectations.

The Ottawa-based company said it now expects revenue of US$1.05 billion to US$1.06 billion for the full year, up from its earlier guidance of US$1.02 billion to US$1.03 billion, and ahead of analyst expectations.

“Management’s guidance of 55 per cent sales expansion for the full year may still prove to be conservative, in our view, with strong volume momentum on the platform and increased spending from its premium merchants,” Bloomberg Intelligence analyst Anurag Rana wrote in a note.

Shopify reported third-quarter revenue of US$270.1 million, up 58 per cent from a year earlier and ahead of the consensus estimate of US$258 million. Adjusted net income was US$4.5 million, or 4 cents a share, beating the expected loss of 4 cents a share.

Gross merchandise volume, which measures the total amount of sales made by all vendors on Shopify’s platform, came in at US$10 billion, up 55 per cent from a year earlier.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.