So far, 2024 has been a year of challenges as LPs and retailers grapple with shifting consumer preferences and a demonstrated lack of brand loyalty.
While a rising tide lifts all ships, this year has brought sales decline and a slowing of consumers transitioning to the legal market. While many industry participants are hoping for revised regulations or excise tax reforms to provide much needed relief, the battle wages on as LPs compete for market share and most elusively, consumer mindshare.
For the three months ended June 30, 2024, Decibel Cannabis reported net revenue of $22.16 million and a net income of $122,000. Notably, the company has achieved $1.8 million in cashflow from operations and $1.2 million in free cash flow for the six months ended June 30,2024.
During good times, companies should be investing into their balance sheet, optimizing to improve margins, and developing battle tested processes to build a protective moat in advance of the hard times.
During challenging economic times, companies need to be able to pivot, operate on constrained budgets and make important strategic decisions.
Statistics Canada released June 2024 retail cannabis sales, with sales at a national level continuing to fall from May levels, reaching $402 million, down 2.8 per cent. The June sales are also down 8.2 per cent, year over year.
In 2024, numerous LPs have encountered cashflow, liquidity and solvency issues. Seeking relief under the Companies’ Creditors Arrangement Act (CCAA), LPs are able to restructure or sell their companies in a supervised manner.
Decibel Cannabis is delivering results and adapting in an evolving market. Refocusing on their core brands, Decibel is optimizing their SKU portfolio, improving internal operations and targeting corporate savings.
“Decibel has shown good discipline reducing our current liabilities by ~5mm this quarter. Market share has been challenged but early indications from Qwest relaunch suggest we will regain market share in flower. A continued focus on execution and capital efficiency will serve as the platform for future growth.” said Benjamin Sze, Decibel’s chief executive officer, in a company issued press release.
Sales and market share
For the six months ended June 30,2024, Decibel posted net revenue of $43 million, down $10 million or 20 per cent compared to 2023. The decline is driven by a $9 million decrease in Canadian recreational sales and $1.3 million decrease in international sales. Possessing a 5.6 per cent national market share in Q2 2024, Decibel Cannabis has the fourth largest market share of LPs in the Canadian recreational market.
The decline in international sales is the result of Decibel changing distribution partners in Israel and halting exports to the market. The company has announced they are now shipping vapes to Australia and received authorization to sell vapes and flower in the UK market in early Q3 2024.
QWEST relaunch
As an early market leader, QWEST has lost market share and under indexes in the dried flower category. Refocusing on the dried flower consumer, QWEST will be relaunching with a renewed value proposition and product offerings for the Canadian market.
“QWEST started off as a premium brand. As our product mix shifted to RTC, we failed to deliver on consumer expectations in the dried flower category, while the market evolved around us. The upcoming relaunch of QWEST is focused on delivery of exceptional value to the flower consumer. This platform, once established in Canada, will give us optionality both domestically and internationally and is expected to show market share gains,” said CMO Warren Matzelle.
Discontinuation of retail operations
On April 10, 2024, Decibel completed the sale of Prairie Records. Comprised of three stores in Saskatchewan and three stores in Alberta, Fire and Flower Inc, a subsidiary of FIKA, takes over the retail assets and operations.
The company received $3 million for the sale, while realizing a $3.3 million impairment loss.
Competition and consumer preferences
Decibel noted increased competition in the infused pre-roll category, and tracked vape consumers migrating to larger formats and disposable vapes. With consumer preferences evolving, understanding their needs and getting ahead of the demand through innovation and planning is crucial.
Competition is fierce, with Jeeter entering the Canadian market and competing head on in the infused pre-roll segment.
Rightsizing and ready
With capital expenditures paused, Decibel is focused on revenue generating activities and producing savings of $2 million annually in general and administrative costs. Carrying $40.9 million in commercial mortgage loans, Decibel is shoring up their balance sheet and managing debt and liquidity level to best serve the company.
“With all the implementation, we expect to materially strengthen our balance sheet, positioning the company better to capitalize on opportunities in the future,” said CFO Stuart Boucher.
Decibel has a track record of delivering positive net income, but has struggled in the previous six months. With the Company stock continuing to languish, shareholders will be waiting and watching for Decibel Cannabis to return to its winning ways.
