A Canadian e-commerce company is offering investors a slightly unorthodox way to tap into the cannabis market.
Ottawa-based Shopify Inc.’s (SHOP) platform has emerged as the go-to place to buy cannabis online after Canada legalized the drug for recreational use Oct 17. The software-as-a-service e-commerce company won the support of Government-run websites in several provinces such as Ontario and British Columbia and became the point-of-sale system for some of the biggest licensed producers, including Canopy Growth Corp. (CGC), Aurora Cannabis Inc. (ACB) and Hexo Corp. (HEXO).
In a quarterly earnings call with analysts, reported on by The Financial Post, Shopify’s chief operating officer, Harley Finkelstein, said the company has the contracts in place to “capture the upside” of the Canadian cannabis industry and grow its gross merchandise volume (GMV), a measure of the total value of merchandise sold through its e-commerce platform.
“We won’t comment on specific merchants — as we never do — but we will say that in terms of the revenue from them, we have built the contracts to capture the upside of GMV from these provinces and from these private providers,” he said.
Finkelstein’s comments came after Shopify increased its revenue guidance to $1.05 billion to $1.06 billion for the full year, up from its earlier prediction of $1.02 billion to $1.03 billion. However, during the call, the COO refrained from providing precise details about how much cannabis sales would boost Shopify’s top-line. “In terms of Q4, we’ve sort of baked in the expectations, but again, these are very early days,” he added.
Shopify was praised on the first day that cannabis was legalized in Canada for preventing its website from crashing, despite experiencing a big jump in customers. The Ontario Cannabis Store alone attracted 1.3 million unique visits in the first 24 hours and received approximately 100,000 orders.
The company’s CEO Tobias Lutke said on the earnings call, reported on by Bloomberg, that Shopify’s expert handling of online cannabis sales could create all kinds of opportunities in the future as other countries begin to legalize the drug for medical and recreational use. “As more countries think about their own regulated industries, whether it’s cannabis or otherwise, we become that first phone call,” he added.
Shopify’s shares rose 12% on Thursday after it reported better than expected results. Third-quarter revenues surged 58 percent on the prior year to $270.1 million, beating the consensus estimate of $258 million. Meanwhile, adjusted net income came in at $4.5 million, or 4 cents a share, comfortably outperforming the loss of 4 cents a share predicted by analysts.