Most cannabis producers in Canada are still reporting astounding losses two and a half years after legalization.
Cultivation of industrial hemp for commercial purposes was legalized in Canada in 1998 after a 60-year long ban. In July 2001, a regulation established by Health Canada allowed the medical prescription of cannabis to patients suffering from severe pain or seizures. The recreational use of cannabis was legalized in Canada three years ago, on October 17, 2018, under the Cannabis Act. Now, under federal legalization, adults (who are 18 years and above) can possess up to 30 grams of cannabis in its dried or equivalent non-dried form.
With legalization, Prime Minister Trudeau and the government vowed that they would address the inequalities in the criminal justice system where weed prosecutions had fallen disproportionately on marginalized and indigenous communities of Canada. They also announced that with legalization, the government will expunge criminal records for previous pot convictions.
Challenges for the Canadian cannabis industry in 2021
Insufficient consideration of consumer demands and expectations – Soon after legalization it became clear that Canada was already growing far more marijuana than the market wanted. Analysts say one reason the optimistic projections have failed to materialize is the tightly regulated distribution system introduced by the government, which largely bans advertising and marketing. Additionally, business owners started to develop new products and brands without keeping the consumers’ needs and wants in mind.
Heavy investments in ambiguous futures – When the Canadian government legalized recreational cannabis in 2018, one of the main objectives was to create a more equitable justice system. Investors however took it to mean that there’s a new exploding business sector, and in the time leading up to legalization, the Toronto Stock Exchange saw what is called a “green rush”. While money poured into up-and-coming companies, not only in the Canadian market but also foreign markets that were embracing legalization, profits in the sector have proven to be elusive. Parallels have been drawn to the dot com boom and crash of 1995. Even two and a half years after legalization, business owners and investors in Canada are reporting losses.
Minority communities squeezed out of business – The injustices that came from criminalizing cannabis consumption in the past have still not been fully remedied, despite the promises made by Prime Minister Trudeau’s government. The current system promotes a for-profit industry and large corporate growers. Licensing of shops belonging to minority and Indigenous communities hasn’t happened entirely and these non-profit sellers are losing out. Indigenous people in the country feel that their needs are being ignored. Legalization happened so quickly that the issues of equity were not addressed by the government.
Presence of a legacy market – Two and a half years after legalization, customers who frequented illegal stores, especially in Ontario, continue to do so. Although the sellers operate outside the new legal system, customers trust them to fulfill their needs. However, one bright spot has been that British Columbia, which was earlier the hub of Canada’s illegal recreational cannabis industry, has seen sales in legal stores grow by 24 percent from June to October 2020.
Takeaways for the Indian cannabis industry
The cannabis industry in India is blossoming. However, where there is a massive opportunity, there is bound to be some uncertainty. Disruption in this sector is a question of when, not if, as companies have already started to evolve.
The primary lesson that India can take from the legal cannabis market in Canada is that to succeed in this exploding industry companies and investors will need to grasp the realities of the market and build sophisticated strategic plans of action. The dynamic nature of the industry is forcing startups to adapt more quickly as compared to other companies in other sectors.
While keeping up with constantly changing laws, and respecting and employing minority communities, companies will need to identify continuous market gaps and build strategic plans to capitalize on them.
Listen to the podcast with Deepak Anand, the CEO of Materia to find out why how his cannabis company is succeeding in Canada. Do you think the other Canadian cannabis industry could have succeeded as expected had they avoided these pitfalls and built proper strategic plans? Let us know in the comments below.