Canada’s Marijuana Business Falters

Anticipated new jobs and businesses have not materialized. 

April 20, 2021

Marijuana Leaf

EXETER, Ontario—The rural community of South Huron, Ontario, expected to benefit from an employment boom when an enormous, local greenhouse was set to become a major hub for what appeared to be Canada’s next big growth industry: legal cannabis. But those expectations have been thwarted, according to The New York Times.

Before a single seed was planted or any of the 200 or so jobs were filled, producers realized that Canada was already growing far more marijuana than the market required. The aftermath included the sale of the greenhouse for about a third of its original purchase price.

These events mirror Canada’s overall experience with the business side of legalized cannabis. The optimistic projections failed to materialize due to the country’s tightly regulated distribution system, which largely bans advertising and marketing. Particularly in Ontario, the store rollouts slowed, and some surveys suggest that many Canadians aren’t interested in using cannabis.

A primary goal was to create a more equitable justice system for a major new industry when Canada’s government’s legalized recreational marijuana in 2018. But a “green rush” swept the Toronto Stock Exchange as investors thought otherwise. Money poured into companies starting up to service Canada while eyeing other opportunities, particularly the U.S. market, where more states were embracing legalization. The investment craze produced a strong echo of the dot-com stock boom of the late 1990s, and it ended with the same collapse.

New York legalized marijuana last month, and voters in four states backed legalization in November, but even with those changes, one marijuana stock index is still down about 70% from its peak in 2018. And most marijuana producers in Canada are still reporting staggering losses, two-and-a-half years after legalization. There’s also a big, new competitor in the legalize marijuana game—Mexico, as the country legalized recreational use of marijuana last month.

Product producers have lost money, layoffs have swept the industry and large producers have merged in a bid to find strength in size. The assumption that marijuana sales in Canada would mirror the sharp spike in liquor sales that occurred in the United States after the end of Prohibition made up the big bets on marijuana.

“Everyone thought that in Canada the industry was going to move further, faster, and that hasn’t happened,” Brendan Kennedy, chief executive of Tilray, a major grower based in Nanaimo, British Columbia, that lost $272 million last year, told the New York Times. And part of the problem might be the competition from the unregulated illicit market.

In Ontario, the plan at first was to handle sales through a branch of the government-owned liquor store system, the way it is done in Quebec. However, multiple changes in government control made for an uneven introduction of privately owned shops. Now, Ontario has approved only 575 shops while  Alberta has 583 outlets, even though it has about a third of Ontario’s population.

Previously the heart of Canada’s illegal marijuana industry, British Columbia has been one of the few comparatively bright spots. There, from June to October 2020, sales in legal stores grew 24%. And while the government-owned cannabis store operator, Société Québécoise du Cannabis, lost nearly five million Canadian dollars (US$4 million) during its first fiscal year in Quebec, it has since become profitable.

Read more about Canada’s experience with legal cannabis in “Oh, Canada: What the U.S. Can Learn From Canada’s Marijuana Rollout” in the July 2020 issue of NACS Magazine.