How were Canada’s biggest cannabis companies valued so high, yet they’re sitting on billions of grams of unsold cannabis and many still haven’t turned a profit? A new feature in the Walrus magazine dives deep into the great — and largely unmet — expectations of legalization.
If you build it…
Canopy Growth — who reported more disappointing earnings last week — is a prime example of a larger troubling industry trend, where built capacity was the key indicator of value to shareholders. Valued at more than $20 billion in 2019, the company had seven growing facilities across Canada. The more indoor growing space a company built, the higher their valuation grew.
“Public markets were responding to funded capacity,” said our very own Jay Rosenthal, who is quoted in the story. “The more capacity you had, the more people believed your company was going to be real and therefore would invest in your stock.”
…it better be good
But despite growing kilo upon kilo of cannabis, licensed producers in Canada have sold just five per cent of what they’ve grown, and massive cultivation facilities have already shuttered or are up for sale. An estimated 1.1 billion grams of cannabis is sitting in storage, already too old or of too poor quality to sell.
Competition is fiercer than ever
And the competition is only getting more powerful: micro-cultivators are coming online and US brands are increasingly finding a way into the Canadian market. The illicit market is shrinking, according to Stats Canada, but still eating up plenty of market share. And the Indigenous cannabis industry, which was largely left out of Canada’s cannabis plan, is also producing quality bud at decent prices.
“Done the right way, it can be a lucrative industry,” said Legacy 420’s Tim Barnhart, whose store is on Tyendinaga Mohawk Territory. “But Canada didn’t get it right. So now they have a costly product, a surplus that’s all dried out, and I don’t know what they’re going to do. There’s going to be huge corporate write-down again, and I’m not sure where that’s going to leave a lot of these players.”
