Five years after cannabis was legalized in Canada, experts and industry insiders say regulatory issues are weighing on the industry’s success.
Nawan Butt, the portfolio manager who oversees the Cannabis ETF, told BNNBloomberg.ca that regulation is the biggest challenge for Canada’s cannabis industry and is the main reason things have slowed since legalization in October 2018. He said there is.
“They came up with a set of rules and directives, but then they moved very slowly and very slowly to catch up with the actual demand of consumers,” Bhatt, who is also head of capital markets at Purpose Investments, said in an interview. It evolved,” he said. . “We’ve seen Canada under-serve consumers to some degree.”
According to Butt, the industry’s underperformance is largely due to the limitations of regulatory authorities. He argued that the cannabis sector will account for “the highest proportion of all bankruptcies in Canada” in 2022 due to the slow progress in this area.
“Regulators have created a kind of penalty against investors and managers in this space who were actually sitting in an industry that was net new and had the potential to generate a lot of taxes (and) create a lot of jobs. ,” said Butt.
legalization anniversary
On October 17, 2018, the federal Liberal government amended the nearly century-old ban on the recreational use and sale of cannabis.
Since then, it’s been a difficult road for industry operators navigating Canada’s legal market.
A review of cannabis laws released last week found that retailers in the industry are struggling to survive financially due to costs associated with regulatory compliance, such as taxes and fees. The review was launched by the federal government last year.
Omar Khan, a spokesperson for cannabis business company High Tide, called attention to regulatory issues within the cannabis industry and warned that if left unaddressed, these issues could have political repercussions for the federal government.
“What started as a political and economic boom for the federal Liberals risks becoming an albatross in the next election. Whatever the reason, the current federal government does not take this sector as seriously as other comparable sectors. It doesn’t look like it’s happening,” Khan said in an interview with BNNBloomberg.ca.
consumption tax
Mr Khan said the excise tax was creating problems for retailers. The tax in its current form is based on the 2015 assumption that the average price per gram of cannabis was $10, which Khan explained is now “much lower.”
“Currently, cannabis producers have to apply their own excise tax stamps for each state or territory. It’s a bit confusing for businesses and creates a level of cost for consumers.” he said.
The excise regulatory framework should be updated, Khan said, but industry players have struggled to coordinate with federal authorities on the issue, a theme that also applies to addressing other industry priorities. The theme, he added.
Industry performance: “Rise and fall”
Although the industry faces frustration after five years, Khan said the first three years of legalization were “very successful” from an economic standpoint.
joint report A report released in February 2022 by the Ontario Cannabis Store and Deloitte found that the cannabis industry contributed $43.5 billion to Canada’s gross domestic product from 2018 to 2021. Over the same period, the cannabis industry maintained about 151,000 jobs across Canada, Khan said.
Butt said the development of a cannabis capital market in Canada is “the first of its kind in the world” and that “new strategies” are needed to determine how best to invest in the industry.
Since then, he said, the industry has experienced “rises and falls.”
“What the industry has done is made very big promises that are very difficult to keep. So valuations have become very volatile over time,” Bhatt said.
Mr. Butt manages the Purpose Marijuana Opportunity Fund, the nation’s first actively managed cannabis fund, which was launched in February 2018.
At one point, Butt said his fund had $50 million in assets. He currently has about $7 million in assets under management.
“The market capitalization of this space has come down significantly, so some of these assets have been depleted,” Bhatt said.
“The other part is that the challenges in this area have become very clear to investors, and investors are now becoming more cautious about this area as a whole, rather than being less welcoming to this area. about it.”
Looking ahead
Emily Leal, Western Canada regional sales director for Greentone, told BNNBloomberg.ca that while the industry has experienced fluctuations, some companies have been able to improve their financial performance and that improvement is likely to continue. He said it was sexual.
Despite improvements, some companies “continue to make big mistakes,” she said. Cases like this give the industry a bad name and “scare” people away from participating in or investing in the legal cannabis market, she said.
Leal argues that five years is not enough time to judge the performance of a new industry, but so far there have been “more failures than successes.”
“Obviously, we feel at this point that a lot of (cannabis companies) are making billion-dollar mistakes. But I think there is hope and we are seeing companies turn their balance sheets around. ” she said in an interview.
Leal said producers are now “starting to get their bearings” and start making better choices, which unfortunately in some cases will involve reducing the number of employees.
Over the next six to eight months, people may be “pleasantly surprised at how well everyone is doing” in Canada’s cannabis industry, she said.
“We’re finally, I don’t want to put it too bluntly, moving away from hiring the cool stoner next door and bringing in more professional talent to teach the rest of the industry how to do business and how to do it.” “We’re at a point where we’re moving in the direction of being able to work more professionally and efficiently,” she said.
