Too much cannabis and too few consumers, the euphoria of legalization has faded in Canada

In Canada, three years after the legalization of recreational cannabis, the euphoria of cannabis legalization has faded. The industry has not achieved its goals, nor has it eliminated the black market.

After a strong start, Canada’s cannabis industry is facing new challenges: black market sales are still strong, production plants are closing, others are being swallowed up by larger ones and employees are being laid off.

Want to know more about the state of the cannabis industry in Canada and the rest of the world? Eager to keep up with the latest hemp news? Download our companion Hemp.IM app today!

Canada’s Cannabis Promise Falls Short of Expectations

Cannabis legalization was a campaign promise by Justin Trudeau in 2015. In 2018, it was a done deal: it became legal to consume cannabis for recreational purposes in the country. The craze was then tangible, with long lines in front of the first stores.

The aim was to curb black market sales. But today, only just over half of all cannabis sales are made on the legal market. The demand has not shifted entirely from the illegal market to the legal market, especially in the western part of the country,” explains Jean-François Ouellet, a professor at HEC Montréal.

The Quebec Exception – What does Successful Cannabis Legalization Look Like?

In Canada, only Quebec seems to be an exception to the failure to curb black market cannabis sales after full legalization. Why is that? First of all, because it has chosen a public system of sale via its SQDC (Société Québécoise Du Cannabis) points, while many other provinces went with 100 % private, or mixed, regimes.

Quebec has also chosen to sell cannabis at the same price as the black market. And if people don’t want to travel, they can order online and have it delivered to their door the same day, just as they would if they called their dealer,” he says. Obviously this has had a huge impact on customer behavior.

Another concern. In 2018, the data on supposed consumption was also overestimated, observes Jean-François Ouellet. There was no significant increase in cannabis consumption with legalization among those over 15 years old: 15.6% against 16.1% between the second quarter of 2018 and 2019, according to Health Canada.

Strong Competition and Overproduction Plague Post Legalization Cannabis

When cannabis legalization was announced, too many producers and seasoned – or novice – businessmen rushed to the green gold… only for the consumer side of the rush to flop. Strong competition, overproduction and falling prices pulled the breaks hard on producers’ euphoria.

Take, for example, the giant Canopy Growth. They managed seven cultivation plants in the country at one point. They all closed or were sold in 2020. And at the original site, layoffs are commonplace. Listed on the stock market, the company has seen its share value fall by more than 26%, just since January.

The spectacular drop can be explained in part by “closed sales outlets during the lock-up periods and supply problems with American sites,” according to CEO David Klein, but only in part. Competitors are also complaining about the lack of outlets in some provinces.

Buyouts and consolidations abound among Canada’s Cannabis Companies

Basically, everyone has inventory on their hands. Some producers have even had to take shelter from their creditors, like AgMedica and Wayland. “When a market is in decline, industry players start buying each other out as cash becomes scarcer. They have to get bigger and bigger,” adds Ouellet.

Emerald Health Therapeutics, which employs 120 people and has a cultivation plant in St. Eustache, north of Montreal, is holding its own, but is not thinking of expanding internationally at this time. “We’ve had our challenges, we streamlined our production last year,” explains Mohammed Jiwan, general manager of operations.

We want to focus on the Quebec market and have a wellness approach rather than a recreational one,” he continues.

__

(Featured image by Jason Hafso via Unsplash)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Hemp.im, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

First published in ouest-france, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Hemp.im assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Hemp.im is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.