Canada’s Cannabis Industry Faces Downturn After Initial Boom

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Smoking cannabis can significantly increase your risk of a heart attack, research finds.

The euphoric rise that marked the beginning of Canada’s cannabis industry seems to be facing a sobering downturn as the razzle-dazzle days give way to a more realistic landscape.

A Long Fought Battle

When Abi Roach reflects on her 20-year campaign for Canada’s cannabis legalization, she draws an analogy she once heard from a former Toronto councillor, likening pot legislation to a “clenched fist.” This imagery, she believes, aptly illustrates the tight control the government had over the cannabis market for centuries.

Roach’s experience in the industry is a testament to the struggle. To operate her famed cannabis consumption space, HotBox, Roach navigated the gray areas of the law, a venue where visitors once hesitated, fearing police intervention.

From Advocate to Empire-Builder

Known as a tenacious advocate for cannabis legalization in Canada, Roach built an empire encompassing 15 varied businesses — from a magazine and tour company to lines of pot accessories and apparel. Despite the challenges, Roach remains optimistic about the future of the industry, emphasizing the need for it to become “just a normal part of everyday life.”

Five years since legalization, there are tangible signs of the industry’s viability: cannabis stores have become commonplace in prime Canadian locations, major companies are expanding their medical marijuana operations to Europe, and the domestic recreational market is now valued in the billions.

Cannabis industry workers

A Market Reality Check

However, the initial hopes and predictions following legalization have not been fully realized. Industry giants like Canopy Growth Corp., Aurora Cannabis Inc., and Tilray Brands Inc. are grappling with the market’s turbulence. They’ve downsized, made significant layoffs, and confronted financial statements that paint a picture of unpredictability and a longer journey to profitability than previously expected.

Roach fears that this downturn might not yet have reached its nadir. “Until there’s a real regulatory reform in all of the main pain points of the industry, we’re going to continue to see companies go bankrupt … and a lot of consolidation in the market,” she predicts.

Pricing Battles and the Illicit Market

As Vivien Azer, a cannabis sector specialist at TD Cowen, points out, one of the significant challenges faced by legal cannabis businesses is competing with the illicit market. The only solution, Azer believes, is offering a comparably priced product.

This sentiment is echoed by the historical pricing trend. A November 2021 report showed the average price for dried cannabis dropping from $11.78 per gram at the beginning of 2019 to $7.50. By the next year, the majority of dried flower products in the Ontario Cannabis Store were priced around $3.50 per gram.

The persistent excise taxes from the federal government further exacerbate the situation. With the decline in cannabis pricing, these tax rates, which seemed reasonable during the time of legalization, are now a significant burden on the industry.

Hopeful Yet Cautious Outlook

Despite the challenges, there remains hope for the industry. Abi Roach remains optimistic about the future of the cannabis market in Canada. “My dream … maybe not in the next five years, but in the next decade, is that we can continue to move people from the unregulated market into the legal market to a point where the legal market is the only market,” she says.