Mercanto Holdings’ (TSXV MUSH: ) reported a loss net for its third quarter Thursday, as the Canadian cannabis manufacturer grappled with market challenges in Quebec as it focused on a nationwide expansion strategy.
The Montreal company that was known until recently as The Good Shroom Co. posted a loss of C$109.215 in its second fiscal quarter, ending on January 31, against a profit of C$56.017 a year ago.
After excise taxes, revenue dropped to C$840,000 from C$930,000, and net income fell by C$1million.
The CEO Eric Ronsse blamed the drop on “ongoing challenges in the industry and temporary softness”. Quebec has traditionally accounted for over 93% of company revenue.
Ronsse stated that the management is “still confident” in its long-term strategies.
According to the company, a process of product rationalization by Quebec’s cannabis board “temporarily affected sales volumes” and caused the drop in second-quarter revenue. Several SKUs that were performing well have been eliminated as part of this procedure, which has caused “a significant hit in revenue over the past quarters,” says the company.
Mercanto had a balanced sheet that was free from debt, with a current working capital amounting to C$417 814. This is down C$563,617 since July 31, 2024. EBITDA was negative for the company, at C$96.038.
This loss is a continuation of a net loss that was C$55,000 for the first quarter fiscal 2025 which ended on Dec. 23, last year. Green Market Report Previous reported. The company reported that it had made a profit in the fiscal year 2024, which finished on July 31.
Mercanto has a multiple-pronged strategy for growth to help reduce dependence on Quebec while expanding nationally. The management plans to introduce four new products by May. Three of them are expected to have a positive impact on the bottom line for the company and to reenergize sales in Quebec.
In Alberta and Ontario the company has already introduced its THC pouches brand Deckies. Plans are to expand into New Brunswick in this quarter, and Saskatchewan by fiscal year’s fourth quarter. The company reported that early consumer feedback has been favorable, citing “unsolicited compliments across online communities, such as Reddit.”
Mercanto has also stated that they are positioning themselves to enter Quebec vape’s category in the autumn. The company said that only 15 vape batteries and cartridges are approved to be sold in the 104 licensed stores.
Ronsse continued, “If this deal is secured, Mercanto will receive significant recurring benefits and we’ll be positioned as a market leader in a profitable new product segment in Quebec.”
The gross margins of the company were temporarily impacted due to one-time costs associated with products returned from Alberta or Quebec. Mercanto decided to rework the products and resell in alternative markets rather than allowing them to build up in stock.
Ronsse was optimistic for the future of the industry, despite present challenges.
“The Canadian cannabis sector is undergoing a reset, and while many companies are struggling – with CCAA filings increasingly common – we believe the bottom is near,” he said.
After a competitor ceased operation in Quebec, the CEO said that his company had already started to reap the benefits of industry consolidation.
Mercanto said while it doesn’t anticipate a large rebound in its fiscal third quarter it will continue to focus on innovations, cash-flow management, and operational discipline. The company cut trade payables and brought some outsourced services back in house to save on professional fees.
The company announced in January a “fixed-up to 20%” plan for stock options, which replaced an older version, where the “rolling-up to 10%” was used. Plan is intended to be “an improved method of compensating company officers, other shareholders and Mercanto as it continues to grow.” Stock options could potentially be granted to eligible beneficiaries over the course of the next decade. According to the plan, Mercanto will offer up to 10,1 million stock options.