Pot frenzy could end very badly in Canada
Skeptics wonder if industry growing too fast, if there’s been overestimation of demand for legal marijuana
There’s one bummer question haunting all the marijuana businesses popping up between British Columbia and Newfoundland.
How much do Canucks like weed, eh?
A year before recreational cannabis is expected to become legal in Canada, there’s an explosion in companies cultivating the stuff. At least 10 marijuana outfits have new listings this year on the TSX Venture Exchange and Canada Securities Exchange.
Some 51 enterprises have gotten the green light to grow pot, and 815 applicants are in the queue. All told, it could be enough to raise the country’s raw-weed output more than tenfold.
This is where skeptics see froth. “If you ask people today why they don’t use, it’s a small percentage who say ‘because it’s illegal,”’ said Neil Boyd, a criminologist at Simon Fraser University in Vancouver. “In many respects there might be an overestimation of demand.”
Longtime users and growers insist he’s wrong, but investors aren’t so sure. Producer MedReleaf Corp. tumbled as much as 28 per cent last month in the worst debut for a Canadian IPO in 16 years amid concern pot stocks are overvalued. Shares of Canopy Growth Corp., the country’s first billion dollar marijuana start-up, are down 21 per cent in the past three months.
The North American Medical Marijuana Index, which tracks leading cannabis stocks in the U.S. and Canada, has plunged 21 per cent since Prime Minister Justin Trudeau’s government in April unveiled its plan to legalize the drug by next July.
Of course, some of the decline may be attributed to the situation in the U.S. Many in the Trump administration, Attorney General Jeff Sessions in particular, are no friends to the industry. For Canadian companies, the risk isn’t political.
“There seems to be a little bit of investor fatigue,” said PI Financial Corp. analyst Jason Zandberg. He said they’re having trouble differentiating between the producers, new and old, and what might give them competitive advantages.
That’s to be expected, according to marijuana bulls, in a brand-new market that hasn’t even arrived yet. Parliament still has to pass the recreational law (though there’s little question it’ll do so). Then the federal government will have to write rules on taxation, and each province will have to decide how to regulate distribution.
“Nothing is going to be perfect right off the hop,” said Jon Bent, a licensed medical marijuana grower who has been cultivating plants outside Winnipeg for five years. “It’s baby steps — and the industry is moving quickly.”
The question is whether it’s going too quickly, considering the variety of estimates about how much recreational weed Canadians will end up regularly ingesting. Some educated guesses are that about 15 per cent of Canadians partake now, legally and otherwise. That’s around 5.4 million people.
One projection, from the Canadian Parliamentary Budget Officer, is that 4.6 million people age 15 and over will use cannabis at least once and consume 655,000 kilograms next year, and that 5.2 million will be doing so by 2021.
Other reports peg future recreational consumption at 420,000 kilograms a year with sales reaching $6 billion by 2021, Canaccord Genuity Group said in November. For its part, the government agency Health Canada anticipates a mature medical marijuana market will be around $1.3 billion.
That could underestimate the number of Canadians who will refuse to buy from corporate weed growers, said Chad Jackett, 38, who runs a medical marijuana dispensary in Squamish, British Columbia, and uses cannabis oil everyday to treat nerve pain.
His concern is that new regulations will sideline the independent farmers who advocated for the plant for years, and grow small amounts.
“I will definitely not be using anything” from one of the big outfits, Jackett said.
“If I don’t have enough of my own then I’ll be getting it from somebody else whom I trust.”