On October 17th, 2018, Canada became the first developed country, and the second after Uruguay, to decriminalize the sale and consumption of recreational cannabis. Much has happened since then.
While that industry is currently valued at US$4 billion, equivalent to 0.2% of Canadian GDP, and generates about 98,000 jobs, there are several companies that were left on the edge of a path that was projected as promising, but that today, five years later, fails to consolidate as a profitable activity for its producers.
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Cannabis companies in Canada lost 99% of their value
What happened during that time on the Toronto Stock Exchange is clear proof of this. During that period, the shares of Tilray Brands, Canopy Growth, and Aurora Cannabis, once considered the leading companies in the industry, have lost 99% of their value.
Now that both the industry and the government are conducting the first major reckoning around the measure and analyzing its economic and public health impacts, a preliminary report by a panel of experts has been released, documenting major bankruptcies resulting from oversupply, excessive taxation, and a regulatory framework for sales licensing that had to be rethought midway through the process.
“The primary message from industry representatives is that, despite the growth of the legal cannabis market, businesses across the supply chain are struggling to make a profit and maintain financial viability,” reads the report, which will be delivered in the coming weeks to the federal government.
While it is true that demand growth has been steady, and between 2019 and 2022 sales went from US$914 million to US$3.5 billion, showing in the interim a steady increase and a continued migration of consumers to the legal market, it is also true that supply continues to be disproportionate to the actual size of demand.
At the end of 2022 federally licensed growers had 1,390 tons of inventory, packaged and unpackaged, while stores had another 80 tons in their inventories. A volume even higher than the country’s total demand, estimated, in the best-case scenario, at about 1,000 tons.
For this reason, it is common that year after year local producers have to destroy a good part of their production. This is despite the fact that some of the largest producers have been closing their crops. For example, last year, Aurora Cannabis stopped operating its flagship Aurora Sky facility in Edmonton, Alberta, one of the largest in Canada.
As a result of this reality, 166 licensees exited the Canadian cannabis market over the past five years, representing 15% of permits issued under the 2018 Act. Similarly, official data shows that almost half of all individual license holders, 141 out of 305, had excise tax debt, bringing outstanding small business obligations to more than $160 million.
In contrast, on the state finance side, the situation has been different. In the last year, tax collections from recreational cannabis sales, both at the federal and provincial levels, exceeded US$1.1 billion. This figure, although significant, is five times less than projected by pre-legalization studies.
Impact of cannabis legalization on health
Statistics Canada reported that the percentage of the Canadian population claiming to use recreational cannabis on a recurrent basis rose from 22% to 27% between 2017 and 2022. Meanwhile, use among Canadian youth has not increased and remains at similar levels, with 37% of those aged 16 to 19 years reporting being users in 2022, compared with 36% recorded in 2018.
According to a report by the Canadian Medical Association Journal trends in recent years have shown less correlation between use and increased health problems. “Cannabis legalization in Canada appears not to have been the public health disaster predicted by some of its opponents, but neither can it be described as a comprehensive or unequivocal success for public health,” the association said.
Part of why the strategy cannot be considered a public health success story is that the illegal market continues to play a major role. According to data from Canada’s Department of Public Safety, illicit sources account for one-third of the entire cannabis market. While that figure has been declining over the years, it presents a problem, as illegal sellers offer prices up to 55% below that offered by the regulated segment.
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First published in Fakty Konopne, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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