We recommend owning Shopify (SHOP) for the long-term. With every quarter, the growth rates continue to accelerate (on a second derivative basis), and Shopify continues to benefit from the spotlight. Apple’s CEO Tim Cook praised Shopify’s AR development (if you haven’t seen what’s happening with Augmented Reality [AR] check out what Shopify is up to) and Ontario Cannabis Retail Corporation (OCRC) chose Shopify to be the back end of its online and physical retail stores.
Shopify will benefit from the instant demand for legal marijuana sales in Ontario, where over a third of the population of Canada lives. The CBC reports potential first-year demand:
“The Parliamentary Budget Officer’s projections would suggest $2.1 to $2.3 billion in retail sales in Ontario.”
This is 5% of our forecasted $40 billion GMV for Shopify in 2018.
The Ontario Cannabis Retail Corporation (OCRC) will fall into the Shopify Plus bucket meaning $2,000 a month of subscription fees, plus up to $38,000 a month upper limit on merchant solutions. Marijuana sales will likely eclipse the $320 million GMV required to get to the Shopify Plus total monthly limit of $40,000 ($480,000 a year).
Where is the upside?
Shopify will likely be a full-service solution which may include apps from the Shopify App store and Shopify Shipping. This could boost margins.
While alcohol’s online sales have not caught the trend, we believe marijuana will be different given the weight of the product is substantially less, making shipping a less costly addition for consumers.
For example on the LCBO website (Liquor Control Board of Ontario), minimum orders of $50 still have shipping costs of $11.95 to $16.95. Considering the weight and size difference of marijuana, we would expect a much lower barrier to entry for online sales.