Cannabis legalization one year later
Nearly a year ago, Canada became the second country in the world – and the first developed nation – to legalize recreational adult use of cannabis. For decades, the drug operated in the shadows, vilified by law enforcement and policymakers as a gateway to the criminal world. But times have changed. Cannabis is better known as an agricultural product than a gateway drug and has many applications in the medical and recreational market. Today, more than three dozen countries have legalized cannabis for medical use while dozens more have decriminalized marijuana, spurring billions of dollars in investment into the once-maligned drug.
BNN Bloomberg takes a look at how the end of cannabis prohibition has fared in Canada, warts and all.
Cannabis emerged as a growth driver, contributing $8.26 billion to Canada’s economy as of July while accounting for 9,200 people currently working in the sector, according to Statistics Canada. Legalization also opened the door for research funds to fine-tune how the cannabis plant’s various cannabinoids can be used to treat pain, anxiety, and cancer, among other ailments.
From a public policy standpoint, legalizing pot gave the government an opportunity keep cannabis out of the hands of youth while collecting tax revenue – even if it’s lower than what was first expected – and make sure it doesn’t stay in the underground economy. Also, by regulating the product and setting standards on how legal cannabis should be produced, pot users will be able to consume the drug safely without any unknown additives.
Momentum to federally legalize cannabis in the U.S., the world’s largest market, has moved in a positive direction. Several states have legalized recreational use of the drug and more are on the way over the next year, while new legislation moves through U.S. Congress to allow U.S. cannabis companies to conduct financial services without fear of penalty.
For all the optimism that legalizing pot brought, the industry encountered several headwinds over the course of the year getting products into the hands of customers. Indeed, finding a store was a challenge given the delayed rollout of sales locations across the country, notably in Ontario. The province currently only has 24 pot stores open thanks to a lottery process which was recently mired in a legal battle as well as the provincial government’s insistence that there wasn’t enough supply in the market to fulfill stores.
The jury is arguably out on whether there’s enough cannabis in the Canadian market to fulfill demand; or, more importantly, if there’s enough cannabis that people actually want. There are signs now that pot producers are growing nearly enough legal cannabis to meet annual demand. Anecdotally, it appears that consumers typically prefer dried flower products that contain high amounts of tetrahydrocannabinol, the chemical compound in cannabis that gets you “stoned”. The problem? The bulk of products available in the market are believed to contain less THC than what consumers could obtain in the black market, which continues to flourish despite legalization.
In late June, Canopy Growth Corp. co-CEO and Founder Bruce Linton was unceremoniously given his walking papers. Linton, who also served as the industry’s de factor spokesperson, was let go after executives at Canopy’s largest shareholder, Constellation Brands Inc., grew frustrated with the pot giant’s overspending and lack of profitability. Since then, Linton has become an investor, advisor and board member of several emerging U.S. and Canadian cannabis companies.
Canopy wasn’t the only cannabis company to stubbornly post losses during the first year of legalization. Dozens of publicly-listed cannabis producers reported quarter after quarter of disappointing earnings, bucking the lofty expectations made a year earlier.
It’s been a rough year for investors in the cannabis space over the past year, especially those who’ve clung to their positions. Many cannabis stocks are broadly trading around 52-week lows as the sector continues to get pummelled by setbacks and regulatory uncertainty.
CannTrust Holdings Inc. became a lightning rod for controversy, and a poster child for regulatory risk, this summer after announcing its operations were found to be non-compliant by Health Canada. A steady drip of negative headlines weighed on the company, notably news that cannabis was produced in unlicensed rooms, apparently hidden behind fake walls to avoid detection by Health Canada inspectors and amid allegations that seeds sourced from the black market entered the company’s production facility. CannTrust’s CEO and chairman were dismissed and its ability to sell and produce cannabis is now suspended by Health Canada as the company looks to get back to a state of regulatory compliance.
CannTrust’s woes came several months after short-sellers alleged self-dealing among Aphria Inc. insiders as well as claims the company paid inflated prices for Latin American assets. The development decimated the Leamington, Ont.-based pot producer’s value and led to the resignation of CEO Vic Neufeld and co-founder Cole Cacciavillani a month later. A special committee later determined the price paid for acquisitions was within an “acceptable range”, but there were certain conflicts in the boardroom that weren't properly disclosed.
Meanwhile, vape products that contain THC were identified by the U.S. Food and Drug Administration as playing a significant role in an outbreak of severe lung illness. The THC vape products are suspected to be behind more than 1,000 people suffering vaping-related illness, as well as 28 deaths. As a result, the FDA warned consumers to avoid using THC vaping products until the outbreak can be contained.
While dark clouds currently circle above the cannabis space, there are some reasons to be hopeful that better days are ahead. Higher-margin products including cannabis-infused edibles and topicals will soon hit the market, giving consumers more choice on how they use cannabis while providing producers with a much-needed revenue boost.
There will also be a lot more cannabis stores eventually open in Canada, which should also bolster sales and help drive people away from the black market. And while the illicit market is unlikely to be eradicated anytime soon, some analysts believe there’ll be an oversupply of pot in Canada, which would cause prices to decline.
Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.