Why Legal Pot Was Taking a Hit in Canada, Weeks Before COVID-19 Sent Markets Plunging
Article by Adrienne Tanner, MacLean’s Magazine
In February, weeks before COVID-19 was declared a pandemic and the stock market was sent into a tailspin, a handful of Canada’s largest cannabis companies were already in layoff mode. In B.C., Canopy Growth was preparing to shutter what was once the world’s largest licensed indoor growing operation, a sprawling 12-hectare greenhouse facility in Aldergrove, along with a smaller one in nearby Delta. The early March closures eliminated 500 jobs. A month earlier, Alberta-based Aurora Cannabis Inc. laid off 500 employees and announced the immediate departure of CEO Terry Booth.
Gone were the heady days of 2018 when the legalization of recreational pot was on the horizon, and cannabis companies were so flush with cash that Canopy Growth chartered planes to fly seedlings from Ontario to B.C. and proudly invited media to watch the deliveries. Freelance photographer Jen Osborne witnessed one of the arrivals and toured the massive Aldergrove greenhouse (one of her photos appeared in Maclean’s). “It wasn’t the look that shocked me, it was the heat and the vibe; a mix of people in suits and underground hippies,” she says. Alongside farmhands tending crops was a film crew capturing videos of pot celebrities promoting the brand. “They were talking about how cool it all was,” Osborne says. “I felt like I was experiencing the future.”
Today, the giant greenhouse sits idle, possibly to be sold for once again growing vegetables; the company hasn’t yet decided, says Jordan Sinclair, Canopy Growth’s vice-president. Aurora similarly put the brakes on its Aurora Sun growing facility in Medicine Hat, Alta.; the company originally had announced plans to cultivate 14.8 hectares in 30 growing bays, but has since downscaled to six. The gains cannabis companies were banking on in the lead-up to legalization of recreational sales in October 2018 have not materialized. So, what went sideways?
The legal cannabis market, although growing, has so far been unable to vanquish a well-established black market, says Michael Armstrong, a professor at the Goodman School of Business at Brock University, who has studied the retail rollout. When pot was first legalized, there were shortages of product and stores, he says. Vancouver didn’t have a single licensed shop open the day sales became legal; today there are only 20. In Alberta, Calgary has more than triple that number; Edmonton more than double. As shops opened and legal product finally hit the shelves, many consumers complained about quality and price, Armstrong says. Cannabis companies can’t win if they can’t find ways to deliver quality product at a lower cost, he adds: “The average consumer is not willing to pay much more for a legal product.”
Legal cannabis producers pay excise tax, just like liquor and cigarette manufacturers, and in some provinces like B.C., consumers also pay sales tax on legal pot. That pushes the price of legal products higher, says Terry Lake, a former B.C. health minister who was laid off in the fall from his position with Hexo, a Quebec-based cannabis producer. “The lack of retail opportunities, combined with regulations and cost, make it very difficult for the legal market to compete with the black market.” A couple of years after legalization, Washington state reduced taxes to help legal cannabis producers compete, and Lake believes Canada should do likewise if it wants to ensure a healthy legal market.
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