When
The analogy, which Roach first heard from a former
Roach has been a stalwart in Canada’s cannabis industry as a longtime advocate for legalization and queen of an empire that eventually spanned 15 different businesses, including a magazine, a tour company and lines of pot accessories and apparel.
While regulations and attitudes have loosened since Canada legalized recreational cannabis five years ago, Roach said policy constraints and industry response mean there is still "a ton of room to go” before the industry reaches general acceptance.
"It's the closed fist that slowly opens as we prove ourselves to society as being just a normal part of everyday life," she said, as the fifth anniversary of cannabis legalization approaches on
“Five years into it, you're really seeing that cannabis is an industry that is viable."
The signs of that viability are everywhere. Cannabis shops dot some of the most coveted strips in Canadian real estate.
Cannabis legalization has had wide-reaching effects and made its use more accessible and acceptable.
Yet the razzle-dazzle days where money was no object and sky-high demand was expected are gone, replaced by a sobering reality: legalization has fallen well short of expectations.
The biggest companies –
Others weren’t so lucky. They sold their business at bargain prices to a bigger rival, folded or declared bankruptcy.
And Roach worries the carnage isn’t over.
"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," Roach predicted.
"It's becoming much harder and harder, not only to raise capital to get out of trouble, but also to sell your company. I know people that were trying to sell their cannabis stores. Nobody wanted it."
Many cannabis businesses were doomed from the start. They spent fast and furiously in anticipation of legalization, scrambled to produce the right amount of pot — first there was not enough, then too much — and discovered catering to consumers wasn’t easy.
Canadians wanted more potent products in packaging that wasn’t dull. Others couldn't shake relationships with longtime dispensaries and dealers who could supply pot at a fraction of the price of the legal market.
Cannabis companies wanted governments and police to go after illicit sellers more aggressively, but felt authorities never put their full might behind the cause, so pot producers took an “If you can't beat them, join them” approach.
"The only way to convince an illicit market consumer to migrate into the regulated market is to have a comparably priced product," said
"Everyone else followed, and so you saw this massive price deflation in the legal cannabis market," Azer said.
In
By last month, most of the dried flower products selling in the
"With that price deflation, you could kiss profit aspirations goodbye," Azer said.
The excise taxes the federal government and provinces charge to licensed producers only made matters worse.
For dried and fresh cannabis, plants and seeds, the taxes amount to the higher of
For edibles, extracts and topicals, the duty is set at
While these rates were palatable at the time of legalization, when people predicted cannabis would sell for
A
Roach realized the tax “is absolutely unrealistic,” after she sold her beloved HotBox to the Friendly Stranger pot firm in 2020. It later turned the business over to
Following a stint at the
And many of those are going unpaid. Roughly
Until the regulations are reformed, Roach maintains there’s going to be a “continued mess” in the industry while the illicit market maintains its strength.
“We’ve been through a lot and I did 20 years fighting for legalization, but I always say I didn't fight for legalization to purchase cannabis in the unregulated market,” Roach said.
“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.”
Cannabis producers want the same thing.
The morning of legalization five years ago, a share in Canopy traded for about
As they watched valuations dwindle, companies argued that the widespread presence of unlicensed dispensaries and other underground sellers was still a problem. To this day,
"The illicit market is why the legal industry isn't as healthy as everybody would like to see it," said
"It probably is the single biggest challenge because if the illicit market would have gone away, as people predicted, you wouldn't have seen the dramatic shutdown of facilities and layoff of employees,” he said.
“Those sales would have been available for the legal players."
Thousands of cannabis workers have received pink slips over the last five years and many of the greenhouses and offices where they worked are in the hands of new owners.
Canopy has sold seven properties, including the iconic
"It's been a volatile five years for sure," Klein acknowledged, saying up until nine months ago Canopy was still hoping to get more overall market growth out of the industry.
Since then, Canopy realized "the concept that you needed to be everywhere and you needed to be everything for everyone was flawed," he said.
It sold its Tokyo Smoke retail business to the owners of the
"We decided the right size is the size we are today, so we don't have to rely on incremental growth" Klein said.
"Let's make sure that business can be profitable, and then once we build that really solid foundation, which we now have, then we can look at opportunities to grow."
This report by The Canadian Press was first published
Companies in this story: (TSX:WEED, TSX: ACB, TSX:TLRY)
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