At Least $131B Lost In Investments In Canadian Cannabis Companies, Say Analysts

The Canadian adult-use cannabis market continued to decelerate in the third Quarter of 2022 when taking Year-Over-Year (YoY) trends, with Quarter on Quarter (QoQ) sales up 3%, according to Cantor Fitzgerald's Pablo Zuanic.

Despite significant mergers and acquisitions (M&A) and attempted consolidation among the Canadian LPs, as time progressed, sales have become more and more fragmented, he added.

How Does This Affect Cannabis Companies?

According to data collected by the law firm Miller Thomson, Canadians who invested in marijuana businesses have lost more than $131 billion, calculated by the total losses of 183 publicly traded and licensed cannabis producers.

"If broken down per capita would equate to each Canadian citizen losing about $43,000," the firm noted.

Many are now pointing the finger at the federal government's rollout of legalization while noting that the black market is thriving, reported CTV National News.

Bankruptcy Should Not Be A Solution

Levon Kostanyan, a retail cannabis shop owner, opened his doors in September 2021. Twelve months later he was forced to close though he's got another three years on his lease. With a rent of $6,000 per month, he admits that bankruptcy may be the only way to get out

“Licensing cost me $10,000 for this location. Then I had all my renovations, which was about $150,000. Then I had rent and operating costs, that’s $60,000. Then I had an inventory of $50,000. So, we’re already at $280,000, and that’s not including payroll for employees and overhead like that,” Kostanyan added.

Black-Market Cannabis Needs A Government Adjustment

On the same block as Kostanyan's business, a black-market cannabis shop sells edibles and cannabis products to a steady stream of customers free of government regulations and taxes.

“They’ve done nothing to shut them down. Right now, there is no point in opening a store. I mean, there’s too much competition. The margins are very low,” said Kostanyan, who believed the government would adjust black market legislation so at least people like himself can compete.

“It's an industry that has been created by the Canadian government and frankly set up to fail,” noted Ellis’s law firm, which has helped dozens of weed companies reorganize their businesses as they struggle to stay afloat.

Cooperative Medical Marijuana Facilities

In southern Ontario, there is an unregulated grow operation, which Paul Maris calls the space a cooperative medical marijuana facility. He claims that “the flower that’s coming out of this medical environment is no different than what’s coming out of a licensed facility. The only governance that’s needed to make it to any consumer shelf in the retail market is a certificate of analysis,” Maris said.

According to Maris, thousands of plants are allowed to be grown at the sprawling operation using the medical marijuana licenses issued to "just four individuals by the federal government." However, there are concerns being shared that the eye-opening amount of cannabis grown using medical licenses at some facilities is finding its way to the unregulated market.

Canada’s Cannabis Act

Currently, a long overdue review of Canada's Cannabis Act is underway. The federal government claims part of its focus is to cultivate a “diverse and competitive legal industry made up of small and large players to displace the illicit market.”

Nevertheless, hundreds of independent retail shops are expected to close across the country this year.

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Photo: Courtesy Of sebastiaan stam On Unsplash