Here’s a New York Times piece on Canada’s experience with legalized cannabis. They’ve been at it for a couple years now. Shifts of this type occur very gradually. so think of these as early returns.
After ‘Green Rush,’ Canada’s Legal Pot Suppliers Are Stumbling
Definitely mixed outcomes. That’s not uncommon in a fledgling industry. Some things to remember:
- Canadian cannabusiness is plagued with predictable challenges, not unlike those that afflicted Silicon Valley back in the late ’90’s. It’s the ‘bubble-and-bust’ syndrome. Companies start with wildly inflated expectations that wobble and collapse over time — often shadowed by desperate attempts by founders to hang on, somehow, to money and reputations. These are usually unsuccessful.
- The Canadian government’s motives for legalizing cannabis were apparently not based solely on profit. They sought to remedy longstanding inequities in the criminal justice system, not to create a new industrial sector. Investors seem to have ignored that. All they saw was quick returns and future wealth. In that respect, they were set up for disappointment.
- Now many cannabis firms are blaming the government’s restrictions on sales and marketing for their difficulties. But they knew what those restrictions were when they signed up. I guess they practiced a kind of ‘willful ignorance”. Doesn’t seem fair for them to pretend otherwise now.
Bad judgments and crappy decisions are common in boom industries. It’s not only drugs that can cloud our thinking. Greed is every bit as dangerous.
Ironically, current polls suggest that many Canadians say they aren’t planning on becoming cannabis users. Business-wise, that ain’t good. Unless they change their minds at some future point, those glossy revenue projections will need downsizing.
Put this together and it’s easy to see why, to date, industry losses have been massive – of the sort that lead entrepreneurs to fold their tents and walk away while they still can. That’s called a ‘shakeout’. The usual result: consolidation into a few very large players and assorted hangers-on.
Naturally, cannabusiness is lobbying hard for a loosening of restrictions around advertising and the opening of new stores to push cannabis products. The politics aren’t so different to Big Pharma’s efforts in the US to open the media to drug ads, and also to promote opioid prescribing to more patients for long-term use. It was good for their business. Not so good for the patients.
Perhaps 10% of cannabis users are likely to develop a Use Disorder (euphemism for problems) at some point. Many will require professional treatment as a remedy, since once you’re dependent on cannabis, it can be damn hard to quit. Given the huge numbers of users, it’s a reason for caution.
The NYT article went on to note that Mexico has legalized recreational cannabis too. That’s a game-changer. They’ll have significant competitive advantages over Canadian or US cannabusiness, in terms of cheap labor, lower operating costs, warmer climate, distribution networks, trade agreements.
As one commentator pointed out, Mexican competition will exert ‘downward pressure’ on prices, taking a significant bite from profits and resulting in declining tax revenue for eager state governments. I would imagine the firms involved will respond by doing their best to ‘grow’ their domestic customer base, using traditional methods — intense marketing, deep discounting and of course, more and more commercial advertising.
And lobbying politicians, no doubt.
At the end of the rainbow, the hope is the cannabiz will settle down the way other new industries have, and focus on fleecing their customers to the best of their ability.
Meanwhile, let’s hang on to our hats. And for Pete’s sake, don’t expect the industry to regulate itself.