Tilray facility closure ‘a blow’ to Leamington

More than 100 jobs lost as supply outstrips demand in pot market

After just a year of growing pot in Leamington, Tilray Inc., one of Canada’s biggest cannabis companies, is pulling up its local stakes and shutting down a greenhouse operation that employed about 120 workers.

“I’m very disappointed — this is a blow to our municipality and very concerning,” said Leamington Mayor Hilda Macdonald, who heard the news second-hand on Wednesday. “Right now, we already have people not working because of COVID,” she said.

In a statement released late Tuesday, Tilray CEO Brendan Kennedy said “The decision to close a facility is never easy. We are continuously evaluating the evolving needs of our business, against a challenging industry backdrop.”

High Park Gardens, a wholly owned subsidiary set up after Tilray acquired Natura Naturals Inc. last year, will close its doors over the next six weeks.

Nanaimo, B.c.-based Tilray will continue operating its High Park cultivation and processing facilities in Enniskillen and London, Ont.

With grower supply outstripping consumer demand, Canada’s cannabis companies have begun reducing greenhouse production capacity, so Tilray’s Leamington facility shutdown comes as little surprise to industry observers.

“This company just can’t conjure enough sales to offset its costs ... fixed costs are killing them,” Craig Wiggins, managing director of The Cannalysts Inc., said of Tilray.

Still ranked the fourth-largest Canadian cannabis company by market capitalization, Tilray’s current market value, at about $1.4 billion, is less than a sixth of what it was worth around the time it acquired Natura Naturals in February 2019 in a deal then valued at up to $70 million.

Wiggins said a lot of investors got “in over their heads” in the heady days leading up to and just after Canada legalized recreational marijuana for adult use on Oct. 17, 2018.

“To me, a majority (of current producers) will go bankrupt — lots of them are on their way now,” said Wiggins.

An unknown number of Leamington employees will be offered jobs at High Park’s other facilities, a Tilray spokesperson said in an email to the Star. But the spokesperson added that “some employees” were laid off at High Park London just last week, “to increase the facility’s efficiency and remove duplication in our workforce,” and Tilray in February cut its total workforce by 10 per cent, a move that eliminated about 20 jobs in London.

Tilray has not announced whether it intends to mothball or sell its 662,000-square-foot (61,500-square-metre) Leamington greenhouse facility, which once grew tomatoes and cucumbers before Natura Naturals was given a medical marijuana cultivating licence from Health Canada in September 2017.

Announced as part of an “optimization plan” for its Canadian cannabis facilities that includes such measures as “3rd party purchases” of cannabis, Tilray said the Leamington closure would help achieve annual net savings of $7.5 million and “avoid significant ongoing capital expenditures.”

Saying Tilray was “extremely grateful” to past and current employees, the company spokesperson told the Star that “this difficult decision to eliminate roles has not been taken lightly.”

Ontario’s Ford government recently moved to open up the cannabis retail market to greater private sector participation, but it’s been “very slow moving” and the dearth of retail outlets is a big reason for some of the oversupply of pot product, according to Wiggins of The Cannalysts.

“If you want to get people to switch to legal, you need storefronts,” he said. “(The lack) of bricks and mortar (in Ontario and Quebec) is probably the biggest reason legal demand hasn’t picked up.”

Looking for savings and reduced costs, “you always cut your worst asset first — for Tilray, that was Leamington,” said Wiggins.

While losing a big employer is always bad news — particularly at a time when COVID-19 measures are putting a lot of pressure on local economies — Macdonald said she remains “optimistic that our community is going to continue to grow.

“We’re still fine — our greenhouse sector is still expanding.”

Macdonald expects that growth to continue, fuelled by an increasingly expressed desire by governments and consumers for greater self-reliance when it comes to Canada’s food supply.

While COVID-19 has “put the brakes on a lot of stuff,” Leamington’s mayor said the novel coronavirus pandemic is providing a valuable lesson for Canadians and offering a lot of promise for the local community, which hosts one of the largest concentrations of greenhouse growing facilities in the world.

“Food is a need and people are looking for that comfort and reassurance — with local food, they know it’s coming from a safe place,” said Macdonald.

Tilray isn’t the only Canadian cannabis business suffering from a glut in the marketplace. Addressing the oversupplied market and underutilized facilities, Canopy Growth, Canada’s biggest cannabis producer, recently announced it was shutting down two of its large B.C. greenhouses — about three million square feet of licensed pot production space — and shedding about 500 jobs.

Other big pot players in Canada, among them Aurora Cannabis and HEXO Corp, have similarly announced greenhouse sell-offs or scuttled expansion plans.

“A lot of people are shuttering their facilities,” said Wiggins.

Given the “excess supply now across the board,” he said he doesn’t believe another licensed producer will be found to purchase and take over Tilray ’s Leamington facilities.

Bucking the negative trend among legit pot growers, he said, is Leamington-based Aphria Inc., another of Canada’s biggest licensed producers and one of its best-performing.