Did These 3 Factors Send Canada’s Cannabis Industry into a Tailspin???

Although Canada was leading the legal recreational cannabis market for several years, the last two years have been much more challenging for all types of cannabis businesses.

We believe that several factors played a primary role in the failure of the Canadian cannabis market and have highlighted what we consider to be the most important reasons in the section below:

1. Saturation – After Canada legalized recreational cannabis, there was a slow uptick in the number of dispensaries across the largest provinces in the country. During the last two years, the number of licensed dispensaries skyrocketed and we believe the retail vertical has become saturated as a result.
2. Worsening Profit Margins – Saturation in the Canadian cannabis industry has negatively impacted profit margins for most businesses. Going forward, we expect the trend to continue and will monitor how companies are able to execute on strategies to become profitable
3. Facility Closures and Divestments – After several of the largest Canadian Licensed Producers (LPs) spent over $1 billion on constructing cannabis facilities, many of the facilities are no longer operational. From 2017 to 2019, Canadian LPs were constructing facilities as fast as possible as demand for cannabis was expected to surge higher. After demand was lighter than expected, many operators started to close facilities or sell facilities for a fraction of the cost to build it. Going forward, we expect to see more facility closures and will continue to monitor this trend

2022 has been a challenging year for the cannabis sector and we believe the advancement of legal cannabis legislation in the United States (US) is the catalyst that could help the sector bounce back.

From Germany to Colombia, we are seeing the international cannabis industry take small steps forward and have a bullish outlook on the sector. We prefer operators that are levered to multiple international markets and are not solely focused on Canada.

If you are interested in learning about leading Canadian cannabis companies, please send an email to support@technical420.com with the subject “Leading Canadian Operators” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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