Corona cannabis high will not last
28 June, 2020
Canadian cannabis revenue soared in the beginning of the coronavirus pandemic, however, not enough to bolster a sector on the throes of reorganization sole two years following the drug was legalized.
Fearing a shortage of the dried flower, Canadians rushed to cannabis retail outlets and websites to fill up ahead of what would grow to be a three-month government-purchased lockdown to slow the pass on of COVID-19.
Sales jumped almost 20 percent found in March from the prior month and continued at a brisk tempo through April, based on the government statistical agency.
Classified as an important service, pot stores remained open while online product sales exploded.
Industry expert Bradley Poulos, who all teaches at Ryerson University found in Toronto, said the pandemic has had a positive effect for the reason that the legal marketplace has actually seen a great uptick in business.
"We noticed a transfer of a few of the unlawful (black market) business to the legal industry during this time period," he told AFP.
But, he added, that was not enough of a raise for an industry in trouble but still struggling to reach profitability.
Canada was the next nation, after Uruguay in 2013, to legalize the recreational use of cannabis.
Canadian businesses -- including Canopy Progress, Aurora and Tilray -- quickly established themselves as industry leaders, expanding into overseas markets on anticipation of legalization spreading, for recreational or medical use.
They raised vast amounts of dollars from investors, listing on the Toronto and New York stock markets.
However the buzz quickly faded.
High hopes
Overly optimistic projections, management issues and product flops eventually left the sector with an overcapacity and deep in debt. Companies' valuations plummeted.
Likewise, said Richard Carleton, mind of the Canadian Securities Exchange, "The legal market's ability to compete with the illegal market has got been compromised or hampered by many of the government regulations."
The junior stock exchange lists about 175 cannabis firms.
Carleton pointed to a ban on advertising modelled on limitations for tobacco, and the slow rollout of retail stores around Canada for the industry's lacklustre performance.
Organizations and investors, he said, had high hopes that the recent introduction of higher-margin refreshments and edibles infused with cannabinoids would learn to turn things around.
However the pandemic threw a wrench in product launches, he said.
"It's not just how that we drew up our start programs for our cannabis drinks," said Canopy Progress spokesman Jordan Sinclair.
The epidemic has also weighed on pot producers' businesses when virtually all were undergoing an enormous restructuring.
Over the past year, several companies have curtailed their operations and scaled back growth plans as a way to preserve cash, as some company founders were displayed the door.
In March, Canopy Development announced the closure of two greenhouses and let go 500 workers.
On Tuesday Aurora became the most recent to scale down, closing five greenhouses and letting move 700 staff.
Rishi Malkani, brain of Deloitte Canada's cannabis practice, said cannabis businesses are facing dire liquidity concerns.
About 10 companies on the verge of failing have filed for bankruptcy protection since the start of year, and extra are expected to follow in the coming a few months, he predicted.
"It's very problematic for cannabis companies to improve capital in today's environment," Malkani said.
He predicted that unprecedented well being crisis will accelerate consolidation in the industry.
Despite most of its woes, Carleton said he expects the nascent cannabis industry to overcome and grow, noting that its labelling as an important services during pandemic has "presented extra legitimacy for the industry."
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