$131 Billion in Losses for Investors in the Canadian Cannabis Market
In the four years since legalization, investors in the 183 publicly traded & licensed cannabis companies have lost more than $131 billion. For the nearly 3 million active investors (estimate) in the industry, that equates to average losses of $43,000 – a yearly salary for many!
Originally, the industry promised incredible growth and opportunity. Many invested their life savings, others gave every spare penny, and some contributed money they couldn’t spare. Very few people understood the true economic forces at play, and even less predicted the downturn of the industry.
Many pundits have pointed to bloated management salaries, bonus structures, and poorly conceived acquisitions as the root cause for the rapidly downturn in valuation of cannabis stocks, while the companies are illuminating the reality of operating in cannabis – fees and taxes are eating away at any potential for profitability.
Currently, cannabis products are taxed multiple times before reaching a point of sale for consumers. With Excise Taxes based on arbitrary assumptions about the legal market (the greater of 10% or $1/gram), many producers are paying as much as 25% of their wholesale prices in excise taxation – a fundamental issue with the Cannabis Act that George Smitherman and the Cannabis Council of Canada are actively working to have amended.
While the Cannabis Act was established, in part, to eliminate the illicit market, we have seen an increase in illicit retailers since legalization, particularly in densely populated areas. These dispensaries do not need to abide by the same set of rules as licensed dispensaries. They can and do provide a service to the community, but without the safety of tested products or Certificates of Analysis (COA). For those licensed retailers neighbouring illicit markets, business is tough. Without reprieve from taxation, these dispensaries are handcuffed and struggle to compete with the prices offered just down the block, where taxes and regulatory fees are non-existent.Sadly, for producers and investors, retailers and employees, the industry will continue to struggle until the Cannabis Act has had meaningful changes. We can only hope that the efforts of lobbying groups, industry experts, and those responsible for the Legislative Review will look at the state of the cannabis industry, and make the necessary corrections needed to support a fair and stable legal market and industry.