Ontario And Quebec’s Cannabis Retail ‘Nightmare’ Threatens Industry, Experts Fear

Article by Daniel Tencer, Huffington Post

BUSINESS 10/07/2019 10:44 EDT | Updated 9 hours ago Ontario And Quebec's Cannabis Retail ‘Nightmare’ Threatens Industry, Experts Fear As stock prices swoon, some marijuana companies are facing a cash crunch. By Daniel Tencer CARLOS OSORIO / REUTERS A production team member works in an aquaponics grow operation by licensed marijuana producer Green Relief in Flamborough, Ont., Jan. 25, 2019

A year after legalization, the honeymoon is over for Canada’s cannabis industry. Many producers are reporting disappointing earnings; some have seen crop failures; turnover is high in the executive suite; and so far, prices in the legal industry are far higher than in the black market.

And the illicit market is hanging in there: Despite promises by advocates that legalizing marijuana would take the industry out of the hands of organized crime, Statistics Canada data shows the black market shrank by just 21 per cent over the past year.

Investors’ faith has been shaken. The North American Marijuana Stock Index — which for now is dominated by Canadian producers — has lost half its value in the past six months.

“It was a bubble and the bubble’s been burst,” said investment analyst Chris Damas, author of the BCMI Cannabis Report.

A number of problems have emerged, not least being a shortage of legal supply, which analysts say was caused by producers having to ramp up production sharply right after legalization. That shortage has driven up prices relative to the black market, and resulted in some retailers, such as Quebec’s SQDC, having to close their doors for parts of the week.

“The retail rollout in Canada has been an unmitigated disaster,” industry analyst Greg McLeish of Mackie Research said in comments to Marijuana Business Daily.

“That is exacerbating a problem, where (companies) who do want to get their product out are having trouble, because the brick and mortar is not built out yet.”

In a recent client note, McLeish looked at the 50 largest publicly-traded cannabis companies in Canada and found that 21 of them have less than six months of cash on hand.

Though McLeish didn’t name the companies, he noted most of them are among the smaller ones, with less than $200 million in market value.

But in Damas’ view, the retail problem isn’t countrywide — he sees “a tale of two solitudes,” with Western Canada’s network of private retailers rolling out quickly and efficiently, while Ontario and Quebec’s more heavily government-controlled networks failed to rise to the occasion.

Quebec needs around 800 cannabis stores to fill market demand, Damas estimates. The website of SQDC, the monopoly retailer in Quebec, lists 21 locations. By comparison, there are nearly 300 private stores in Alberta and more than 80 in British Columbia.

But Damas reserved his harshest criticism for Ontario, where the government has instituted a lottery for issuing cannabis retail licences, one that has so far issued far fewer permits than analysts estimate the province needs.

Read the full article here.

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