Republica Press

Your Business & Political News Source

REPUBLICA PRESS
Your Business & Political News Source

After ‘Green Rush,’ Canada’s Legal Pot Suppliers Are Stumbling

by

EXETER, Ontario — The mayor of the largely rural community of South Huron, Ontario, was looking forward to an employment boom when a marijuana producer used its soaring stock value to buy an enormous greenhouse on the edge of the municipality’s largest town.

The purchase three years ago, in Exeter, promised to make his sprawling community a major hub for what seemed like Canada’s next big growth industry: legal pot and the high-paying jobs it would bring.

But before any of the 200 or so anticipated jobs in the greenhouse were filled — or before a single marijuana seed was even sown there — it became apparent that Canada was already growing far more marijuana than the market wanted.

After sitting idle for two years, the one-million-square-foot greenhouse was sold last year for about one-third of its original purchase price of 26 million Canadian dollars, or $20.75 million.

Like plastics in the film “The Graduate,” marijuana seemed destined to become Canada’s next big thing.

The investment craze produced a strong echo of the dot-com stock boom of the late 1990s. And it ended with the same collapse.

Even with a slight recovery propelled by the spreading legalization in the United States — New York legalized marijuana last month, and voters in four states backed legalization in November — one marijuana stock index is still down about 70 percent from its peak in 2018.

Two and a half years after legalization, most marijuana producers in Canada are still reporting staggering losses.

And a major new competitor is looming: Mexico’s lawmakers legalized recreational pot use last month. So the business climate for Canada’s growers could become even more challenging.

“There’s probably going to be a series of shakeouts,” said Kyle B. Murray, the vice dean at the University of Alberta School of Business in Edmonton. “Things were way overblown. It’s very similar to the dot-com boom and then bust.”

previously the heart of Canada’s illegal marijuana industry. There, sales in legal stores grew 24 percent from June to October 2020.

lost nearly 5 million Canadian dollars during its first fiscal year, it has since become profitable.

Largely disappointed at home, some of the larger growers in Canada have pointed to foreign markets, particularly for medical marijuana, as their next great hope. But many analysts are skeptical.

Mexico’s recent move toward creating the world’s largest legal market could doom most marijuana growing in Canada, said Brent McKnight, a professor at the DeGroote School of Business at McMaster University in Hamilton, Ontario. Trade agreements will likely make it impossible for Canada to stop imports from Mexico while Mexico’s significantly lower labor costs and warmer climate potentially give it a competitive advantage.

“That would certainly put some downward pricing pressure on local growers,” he said.

And as Canada’s industry is forced to consolidate to survive, some worry about who will lose out as large, publicly traded companies come to dominate the space.

Long before legalization, many of the first shops to defy Canadian marijuana laws were nonprofit “compassion clubs” selling to people who used cannabis for medicinal purposes.

The current system’s emphasis on large corporate growers and profits has squeezed many people from minority communities out of the business, said Dr. Daniel Werb, an epidemiologist and drug policy analyst at St. Michael’s Hospital in Toronto. Dr. Werb is part of a research group whose preliminary findings have shown that “there is a marked lack of diversity” in the leadership of the new, legal suppliers, he said.

Sellers in Indigenous communities, too, have been left in limbo, generally not subjected to police raids but also outside the legal system, although Ontario has began licensing shops in some of those communities.

“I get more and more concerned about, on the one hand, the lack of ethno-racial diversity and, on the other hand, a lack of imagination around the fact that this didn’t have to be a wholly for-profit industry,” Dr. Werb said. “It seems like there was a missed opportunity to think creatively.”

View Source

Terms and Conditions - Privacy Policy