Just over a year ago, Canada became the second country in the world, and the first developed nation, to legalize recreational use of cannabis. For decades. The drug operated in the shadows, vilified by law enforcement and policy makers as a gateway drug and has many applications in the medical and recreational market. Today, more than three dozen counties have legalized cannabis for medical use while dozens more have decriminalized Marijuana, spurring billions of dollars in investment into the once-maligned drug.
Cannabis emerged as a growth driver, contributing $8.6 billion to Canada’s economy. As of July while accounting for 9200 people currently working in the sector, according to Statistics Canada. Legalization also opened the door for research funds to fine-tune how the cannabis plant’s various cannabinoids can be used to treat pain, anxiety, and cancer, among other ailments.
From a public policy standpoint, legalizing pot gave the government an opportunity to keep cannabis out of the hands of the youth while collecting tax revenue, even if it’s lower than what was first expected, and make sure it doesn’t stay in the underground economy. Also by regulating the product and setting standards on how legal cannabis should be produced, pot users will be able to consume the drug safely without any unknown additives.
For all the optimism that legalizing pot brought, the industry encountered several headwinds over the course of the year getting products into the hands of customers . Indeed, finding a store was a challenge given the delayed of sales locations across the country, Motoblur in Ontario. The province currently has 24 pot stores open thanks to a lottery process which was recently mired in a legal battle as well as the provincial government insistence that there wasn’t enough supply in the market to fulfill stores.
The jury is arguably out on whether there’s enough cannabis in the Canadian market to fulfill demand; or importantly, if there’s enough cannabis that people actually want. There are signs now that pot producers are growing nearly enough legal cannabis to meet annual demand. Anecdotally, it appears that consumers typically prefer dried flower products that contain high amount of tetrahydrocannabinol, the chemical compound in cannabis that gets you “stoned “. The problem is that the bulk of the products available in the market are believed to contain less THC than what consumers could contain in the black market, which continues to flourish despite legalization.
It’s been a rough year for investors in the cannabis space over the past year, especially those who’ve clung to their positions. Many cannabis stocks are broadly training around 52-week lows as the sector continues to get pummeled by setback and regulatory uncertainty. CannaTrust Holdings Inc. became a lightning rod for controversy, and a poster child for regulatory risk, this summer after announcing its operations, were found to be non-compliant by Health Canada. A steady drip of negative headlines weighed on the company, notably news that cannabis was produced in unlicensed rooms, apparently hidden behind fake walls to avoid detection by Health Canada inspectors. And amid allegations that deeds sources from the black market entered the company’s production facility. CannaTrust’s CEO and chairman were dismissed and it’s ability to sell and produce cannabis is now suspended by Health Canada as the company looks to get back to a state of regulatory compliance.
CannaTrust’s woes came several months after Short-sellers alleged self-dealing among Aphria Inc. insiders as well ass claims the company paid inflated prices for Latin American assets. The development decimated the Leamington, Ont-based pot producers value and led to the resignation of CEO Vic Neufield now co-founder Cole Cacciavillani a month later. A special committee later determined the price paid for acquisitions was within an “acceptable range”, but there were certain conflicts in the boardroom that weren’t properly disclosed.
Meanwhile, vapor products that contain THC were identified by the U.S. Food And Drug Administration as playing a significant role in an outbreak of severe lung illness. The THC vape products are suspended to be behind more than 1000 people suffering vape-related illness, as well as 28 deaths. As a result, the FDA warned consumers to avoid using THC vaping products until the outbreak can be contained.