Cannabis Carnage – Cannabis | weed | marijuana

The cannabis carnage continues as Canopy Growth’s shares recently fell 40% on the Toronto Stock Exchange. This comes after the company announced it would issue new shares to reduce its debt burden.

Meanwhile, Organigram posted a net loss of $213.5 million in the third quarter. CEO Beena Goldenberg blamed “THC inflation.” That is, companies exaggerating their THC content to fuel higher sales.

Organigram’s total net sales declined 14% in the quarter after declining 17% sequentially.

Still, the CEO believes the solution is to complain to Health Canada about “THC inflation.” She thinks floral products with 28% and 32% THC are impossible.

“It’s not something even the most advanced cultivation techniques could achieve,” Goldenberg said in a press release.

As we’ve been saying for years, legalizing cannabis in Canada was a lesson in nepotism.

The original homesteaders – “BC Bud” – were labeled “organized crime” and ignored during the legalization process. Public health stakeholders wrote the rules.

Canadian consumers may love the novelty and convenience of legal weed, but beneath the surface it’s cannabis carnage.

Cannabis Carnage – Canopy

Just a day before a key debt maturity date, Canopy announced that they would be diluting their shares. The cannabis carnage began with a 40 percent drop in WEED-T stocks.

The idea is to take $437 million in debt off the company’s balance sheet. However, some analysts have hinted that Canopy may not be able to iron out its mountain of debt. That the true stock value of the company is zero.

Canopy’s latest earnings report showed a $1.4 billion debt hole and less than $800 million in cash. A far cry from the hyped nonsense of 2018 and 2019 when legal cannabis first hit the market.

The fact is, Canopy has never been profitable. Like the other major licensed producers, they’ve never had positive cash flow. Canopy’s most recent fiscal year ended in March with a net loss of $3.3 billion.

To stem the cannabis carnage, Canopy is paying $225 million in senior convertible notes. Lenders with nearly $200 million in debt agreed to a swap deal.

Canopy will pay lenders $101 million in cash, 90.4 million common shares and $40.4 million in new convertible notes that lenders can convert into common stock at 55 cents per share.

Analysts think Canopy may have to issue 73 million new shares at that price. The company currently has 558 million shares outstanding. The value of these shares has been falling continuously since the beginning of 2021.

In other words — Canopy is addressing its debt woes by significantly diluting existing investors. The stock is down more than 99 percent from peaks in the months leading up to legalization.

A cannabis carnage indeed.

Cannabis Carnage Org Chart

The cannabis carnage at Organigram differs from the problems at Canopy.

Both are due to the fact that these heavily indebted, capital-intensive, and politically connected cannabis companies aren’t as popular as your little “illegal” grower or micro-license holder.

But while Canopy tries to do the right thing by getting out of a financial hole, Organigram runs to the authorities.

They complain that they have been “disproportionately negatively affected by THC inflation.” Your proof of THC inflation is

a) Lack of standard tests for potency of cannabis by Health Canada

b) The number of cannabis flower products labeled 30%+ THC has increased tenfold in one year

It’s almost as if new players are entering the field and learning how to grow high-quality cannabis. But according to the lackluster minds on Organigram’s board of directors, those high THC levels are “not something even the most advanced cultivation techniques could achieve.”

In response to the competition, Organigram’s CEO said prices needed to be lowered “so that we can address the value equation for consumers.”

The cannabis carnage at Organigram is a result of dealing with the competition in the market. Something these big producers are not used to. First as one of Harper’s medical producers, then as one of Justin’s top recreational producers, Organigram has enjoyed significant market share.

Alongside pot giants like Canopy, Tilray, or Aurora, Organigram enjoyed the perks of being one of the few market participants.

However, there are now hundreds of licensed cannabis growers in Canada. And consumer preferences suggest that small-scale (potent) craft strains are superior to the sea-of-green value buds that these big producers specialize in.

But the problem must lie with consumers.

“We’ve sent comments to Health Canada, we’ve spoken to the (provincial cannabis wholesale) boards, and we’ve spoken to other labs and really looked at solutions to address this issue,” the Organigram CEO said.

What’s next for cannabis in Canada?

From excessive taxes, zero tolerance on marketing, and government distribution monopolies to other regulations that drive up the cost of doing business, Canada’s cannabis carnage is the result of a botched legalization program.

Even Organigram’s concerns about “THC inflation” aren’t entirely unfounded. Canadian cannabis regulations allow for a 15% variance in either direction. So a floral product labeled 30% THC may only contain 15%.

And when it comes to Organigram’s legal battle with Health Canada over potent extracts, we stand 100% with the cannabis manufacturer.

But it’s hard to feel sympathy for these Leviathan cannabis producers.

Producers who were more interested in selling equity than quality weed. Producers who have not committed to funding medical cannabis lawsuits. Cannabis producers who didn’t challenge the narrative that BC Bud (their competitor in the market) was not a bunch of violent criminal gangsters.

The chickens come home to sleep. Are these big producers ready to reap what they sow? The cannabis carnage was predictable. And it’s far from over.