Canadian Cannabis market – A current status and What's next?
It is extremely rare for new legislation to capture global attention which made it all the more unprecedented when on October 17, 2018, Canada became the first G7 nation to legalize recreational cannabis. Those who wanted to enter this emerging market faced numerous hurdles and navigated an overly complex regulatory environment.
The cannabis industry is expanding and changing for more than four years since it became legal, but the market is still very regulated, and supply chain and compliance issues have a negative impact on profitability. The profitability of the industry is severely harmed by cost growth, industry-wide competition, and the growing pay needed to recruit and retain people.
Canadian sales of recreational cannabis are projected to hit a record of 4.6 billion Canadian dollars in 2022.
The cannabis sector is expanding due to the development of new products, but there are financial challenges due to supply chain problems, industry consolidation, stringent restrictions, and inflationary pressures.
Profits for cannabis companies were severely hampered by rising expenses and supply chain problems in 2022, and these same problems pose a danger to profitability in 2023.
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A hack in Ontario that targeted the partners of the cannabis retail distribution organization severely damaged the supply chain. The cannabis supply chain was further hampered by striking cannabis workers in British Columbia. As a result, several retailers fired staff members while others shut down. For farmers, the conflict in Ukraine and the sanctions imposed on Russia have increased fertilizer costs by up to 80%, and a shortage of the carbon dioxide needed for plant growth is further squeezing revenues.
The government of Canada owns the most prosperous cannabis companies.
According to MJBizDaily* study of the publicly traded and government-owned businesses as well as privately owned enterprises, which typically do not release financial statements, the most lucrative cannabis businesses in Canada are owned by various levels of government.
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The Ontario Cannabis Store has so far been Canada's most prosperous marijuana business (OCS). The monopoly cannabis supplier for the more than 1,600 privately held retail stores in Ontario is the OCS, which is owned by the province and whose board is nominated by the government.
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Société québécoise du cannabis is Canada's second-most lucrative cannabis company (SQDC). The SQDC is the sole government-owned distributor and retailer of cannabis in Quebec. Contrary to Ontario, Quebec forbids privately operated cannabis outlets and instead uses a government monopoly to control all retail sales, including those made online.
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The third most lucrative company is the BC Liquor Distribution Branch (LDB), which operates some retail and wholesale cannabis activities in British Columbia.
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Cannabis NB, the province-owned cannabis retailer, and wholesaler in New Brunswick has also announced solid earnings.
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For their respective provinces, the four state-owned businesses collectively generated a net income of just under CA$ 500 million.
The private sector doesn’t really make money!
Contrary to cannabis firms operated by the Canadian government, revenues from the private sector have been few. Cannabis growers are subject to strict government oversight, although they have also committed a number of errors, including:
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Disastrous greenhouse investments cost hundreds of millions of dollars, resulting in billion-dollar "balance sheet revisions."
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Since the legalization of adult usage, they have sold less than 20% of their crop, which is unsustainable for any agricultural enterprise.
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Destroying a significant amount of stock, at least 900 million grams of dry, unpackaged marijuana since its legalization.
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Enormous overproduction by the end of November of last year, the total weight of dried cannabis held by authorized growers, distributors, and retailers had risen to 1.4 billion grams.
There are only a few licensed mass producers that ended break even or are on the edge of profitability since the legislation, among those: Delta, British Columbia-based Pure Sunfarms, a subsidiary of Florida-headquartered vegetable grower Village Farms International, Redican was later acquired by Quebec-based Hexo Corp. in 2021, Decibel Cannabis Co and Tilray
The total losses in the private sector since the legislation have easily surpassed 16 billion Canadian dollars, with large producers like Smiths Falls, Ontario-based Canopy Growth Corp., Edmonton, Alberta-based Aurora Cannabis, and New York City-based Tilray Brands being the main contributors.
Will Canada permit the sale of CBD at conventional retail stores?
One of the most peculiar disparities between the cannabis sectors in Canada and the U.S. - their radically different approaches to hemp extracts - may be resolved by a ground-breaking CBD recommendation anticipated this summer from Canadian health regulators. Hemp is accepted and widely available in the United States, while higher-THC cannabis is still illegal on the federal level despite widespread state disdain for the drug's prohibition. In contrast, the Canadian government authorized cannabis with a high THC content in 2018. But CBD is still illegal in Canada, where it is handled similarly to marijuana with a high THC content. Due to federal regulations mandating CBD sales to take place in provincially registered businesses, which typically specialize in high-THC goods and aren't allowed to import CBD created in the United States for commercial usage, Canada's CBD vendors frequently operate in the underground market.
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However, the closed CBD industry in Canada may soon start to expand. As part of the "Review of Cannabidiol: Report of the Science Advisory Committee on Health Products Containing Cannabis" in July, the advisory committee for Health Canada came to final recommendations on CBD with the proper safety, efficacy, and quality requirements. Currently, a ruling on CBD sales is anticipated from the agency. According to experts, Health Canada's recent recommendations will bring the nation one step closer to legalizing more widespread retail sales of cannabidiol.
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If this results in new market prospects outside of the country's marijuana retail industry, Canada may see a sizable new market open to both cannabis and conventional enterprises. The development of the CBD market has been significantly impacted by the legislation. Currently, some of Canada's 3,000 or so cannabis merchants carry CBD products. But it is illegal to purchase cannabinoids in supermarkets or convenience stores. Only a small number of the 74 certified hemp cultivars in Canada yield enough CBD to be commercially viable. It is technically conceivable to extract CBD from a hemp cultivar grown for its fiber or grains, but the expense would be more than the yield.
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Manufacturers of Canadian products have been unable to get affordable wholesale CBD supplies in the US due to import restrictions. Canada forbids the importation of CBD made outside of the country, with a few exceptions for use in medicine and research. Cannabis businesses in Canada have focused almost solely on existing cannabis consumers, who are primarily interested in THC profiles, as a result of the CBD restrictions.
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In the US, CBD has experienced varying outcomes. Health officials in the United States have been making the same claims as their counterparts in the north for years, claiming that there isn't enough data on CBD to permit its sale outside of the pharmaceutical industry. Despite these health cautions, stores may be found offering over-the-counter CBD in all 50 states of the United States. Numerous CBD products are publicly sold and promoted everywhere from head shops to hair salons and yoga studios to farmers' markets. In particular, gummies, tinctures, and capsules are well-liked.
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Some American shops use conflicting state regulations governing hemp extracts as justification for their sales. Others blatantly disregard health laws at all levels of government in the hopes that the legality of low-THC hemp plants on the federal level translates into little risk when selling extracts made from such plants. It's a careless business strategy that, with very few exceptions, has been successful. In fact, weak enforcement of illegal CBD usage in the US has given hemp business owners more confidence to experiment with further modifying extracts to create psychoactive isomers like delta-8 THC and HHC. Hexahydrocannabinol, often known as HHC, is a hemp derivative that is present in the plant naturally in trace amounts. Ironically, the states with the greatest availability of those intoxicating hemp products are those that do not yet permit the sale of goods containing naturally occurring THC.
Thinking forward CBD-producing hemp companies aren't only waiting for Canada to expand their market. Some people are relying on Canada to make amends for some of its southern neighbor's errors.