Investors are losing billions on Canadian cannabis
Investors have lost billions investing in Canadian cannabis. This is the latest data collected by the law firm Miller Thomson.
Out of a total of 183 publicly traded licensed cannabis producers, they collectively lost $131 billion.
Or as one Redditor put it:
Quality marijuana costs $7.69 per gram.
It is estimated that an average joint contains 0.32 grams of marijuana.
So a joint should cost around $2.46.
Therefore, $131 billion could buy 53,252,032,520 joints.
Canada has 38.25 million inhabitants.
So every Canadian could have gotten 1,392 joints instead of investing in cannabis companies. That’s almost 4 joints a day for a whole year. (Even a leap year)
Or, to paraphrase an attorney at the law firm, it’s like every investor losing $43,000.
How Could Canadian Cannabis Investors Lose Billions?
How Could Canadian Cannabis Investors Lose Billions? The writing has been hanging on the wall for a long time.
First, let’s look at the macros. Rather than relying on the tried and true methods of balance sheet, revenue, assets, equity, net income and earnings, Canada’s major cannabis producers have focused on market value.
For example, in 2018, Aurora was valued at $7.4 billion. Looking at Aurora’s 2018 earnings before interest, taxes, depreciation and amortization, that valuation was 28 times higher than it should have been.
And they’re not the only ones. Canopy Growth burns money. No LP has ever had a positive cash flow.
People haven’t invested in Canada’s cannabis companies. They have played. Or rather, donate their income so overpackaged, sterile cannabis can sit in government distribution centers, ready to be shipped to private retailers.
Investors have lost billions investing in Canadian cannabis because it was never an investment to begin with.
There is a difference between the modern stock exchange casino and the traditional role of the stock exchange in facilitating investing.
It’s like the difference between canned spam and a grass-fed ribeye steak. Both are technically meat, but one is superior to the other.
Blame the black market!
Have Investors Lost Billions Investing in Canadian Cannabis? Of course we can’t blame the system. The black market must be to blame!
Many retail establishments have opened and closed their doors in Canada’s legal market. They played by the rules, applied for all licenses, scored their i’s and paid all fees and taxes.
But the government didn’t keep its end of the bargain. One arm of the government was zealously taxing and regulating the legitimate retailers. While the other arm arbitrarily and incompetently enforced the closure of the illegal sector.
According to the law firm behind the latest figures, “It’s an industry created and frankly doomed by the Canadian government.”
When looking for culprits, governments and their cronies have no problem throwing medicinal cannabis growers under the bus.
Many medicinal cannabis growers have licenses for hundreds of plants. They grow for themselves and others who are medically licensed. They often share their grow space with other medicinal growers.
But even a spokesman for the law firm Miller Thomson couldn’t help but speculate that medicinal growers are diverting production to the black market.
This belief was widespread (and discredited) during the Allard trial, but as the saying goes, if you tell a lie enough times, people will believe it.
And now Health Canada is gearing up for another showdown.
Soon they will argue that these medicinal breeders and designated licenses need not exist. This recreational legalization is sufficient and they can legally shut down the medicinal cannabis program in Canada.
Could Cannabis Law Review Fix Everything?
The long overdue review of the Cannabis Act is underway. But even then, it will take up to 18 months to complete.
Until then, investors have plenty of time to lose more billions on Canadian cannabis.
All the basics of the major licensed producers have remained the same. If anything, they use news about German and other European legalization programs to inflate their already inflated share prices.
Suffering from excessive taxes and regulations, the small to medium-sized producers are unlikely to survive the next two years of the government’s review process.
In addition, retailers are also falling behind. As one near-bankrupt retailer told CTV, “I was 100 percent screwed by the government.”
It should come as no surprise that a government plagued by scandal and incompetence once failed to effectively legalize cannabis.
Only governments could lose money selling drugs.
How Can Canadian Cannabis Investors Make Billions?
Investors have lost billions investing in Canadian cannabis. But how could they recover?
First, it’s unlikely to happen. Canada’s Laurentian elite prefer corporate conglomerates to a network of small businesses.
Name, for example, a single prime minister in the last four decades who was not an agent of the Desmarais family and the Power Corporation.
As long as cannabis legalization falls short of “public health and safety,” the viability of a legal industry depends on what some bureaucrat thinks, rather than what the consumer wants.
The answer is simple enough. But the chances of it happening in Canada are zero, which is a shame because it’s an easy answer. Just a series of three concrete steps.
- Eliminate red tape, excise taxes, provincial merchants, government surcharges and fees, and every single “public health and safety” regulation.
- Cannabis pardoned across the board. A previous criminal record should not prevent you from owning a cannabis business.
- Expand the medical cannabis program and allow physicians to prescribe cannabis instead of “authorizing” it, while increasing the number of plants per patient and designated grower.
The illegal market competing with the legal market is not the problem. The cannabis market is not open and free enough to provide incentives for illegal actors to enter the legal system.
You can either pay all that money for licenses and be regulated to death by government bureaucrats while slowly but steadily losing money to underground competition.
Or you risk fines and jail time but remain profitable. The old saying “if you can’t beat them, join them”.
Free markets will always overwhelm the tastes and desires of government bureaucrats. It’s best to keep this lesson in mind when investing in Canadian cannabis.