Sales on the rise, but bankruptcy in the area of cannabis

Ventes en hausse mais faillites en vue dans le secteur du cannabis

Ventes en hausse mais faillites en vue dans le secteur du cannabis

For fear of shortages or to manage their stress, Canadians flocked for the containment out to the stores and the sites of cannabis.

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June 28, 2020 9: 00 am

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Sales on the rise, but bankruptcy in the area of cannabis

Olivier Monnier

Agence France-Presse

TORONTO — Even if the outbreak of coronavirus has pushed the sales of cannabis in Canada, it runs the risk of cutting off the wings of a sector in the middle of reinventing itself less than two years after the legalization, say experts.

For fear of shortages or to manage their stress, Canadians flocked for the containment out to the stores and the sites of cannabis. Sales have increased by nearly 20 % in march and April, according to Statistics Canada.

“The COVID-19 has had a positive effect on the legal market. We have seen some transfer of the black market to the legal market,” explains to the AFP Bradley Poulos, an industry expert who teaches at Ryerson university in Toronto.

The coronavirus is, however, occurring at the worst possible moment for this young industry which is already facing “a lot of challenges”, including problems of profitability, a year and a half after Canada became, in October 2018, the second country after Uruguay to legalize the soft drug, ” he adds.

The decision had given rise to a whole new economy. Pioneers, the Canadians are taxed among the leaders, is expanding abroad, particularly in Europe, seen as a large future market of medical cannabis. The world of finance has also open arms and many companies are listed on the stock Exchanges of Toronto and New York.

Cannabis edible

Based in the Ottawa area, Canopy Growth is the largest producer of cannabis listed on the stock Exchange in the world with a capitalization of around $ 8 billion. Its main competitors include Cronos Group and Aphria, also based in Ontario, or Aurora Cannabis and Tilray, to the west of the country.

But the euphoria quickly faded. Between the too optimistic projections, management issues, and the failures in the marketing, the sector has found itself in overcapacity, while companies have accumulated losses and have seen their market value plummet.

“The ability of the legal market to compete with the black market has been hampered by a number of government rules,” said Richard Carleton, CEO Canadian Securities Exchange, which has about 175 companies cannabis — canadian and us — his approval ratings in Toronto.

The restrictions in terms of adverts and the very slow deployment of physical stores in particular have weighed on the performance of the industry, ” he said.

It had “great hopes” in the opening of hundreds of boutiques in 2020 and the legalization recent new products, including edible and drinks infused with cannabis, whose margins are said to be superior to the dried flowers. But these plans were partly disrupted by the epidemic, ” said Mr. Carleton.

On the brink of bankruptcy

“This is not the way we had planned the launch of our drinks cannabis”, was mid-march, AFP Jordan Sinclair, vice-president to the communication of Canopy.

The epidemic has impacted on the operations of producers at a time when most of them were in the middle of strategic restructuring.

Over the past year, many companies have had to rein in their expansion plans and reduce some of their operations in order to control their spending in order to be profitable. A number of leaders have been replaced.

Symbol of the challenges of the industry, Canopy announced in march the closure of two greenhouses in British Columbia and the dismissal of 500 employees.

Aurora Cannabis announced on Tuesday that it would also close five production sites and laying off 700 employees.

The crisis has exacerbated the liquidity problems in the industry, threatening the survival of small corporations, also explains Rishi Malkani, head of the sector of the cannabis at Deloitte Canada.

Since the beginning of the year, ten companies were placed under the procedure of bankruptcy. Others are expected to follow “by the summer or the fall,” he says.

“If you look at the things on the good side, the pandemic will only accelerate the consolidation already achieved in the industry,” said Mr. Malkani. “The smaller ones will disappear and those who are better armed and better capitalized, will dominate the sector.”

Richard Carleton wants to be in spite of everything optimistic, seeing the sector to continue its growth,” and rejoicing that cannabis has been considered essential during the outbreak. “It has reduced a little more stigma associated with the sector. This has given the industry a legitimacy”.

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