Tuesday, October 17, 2023 marks five years since recreational cannabis was legalized in Canada and it’s been tough going for operators in the budding sector.
Industry players have had to contend with oversaturation, competition from the black market, limited opportunities to enter the United States, and, more recently, challenging broader economic conditions due to high inflation and interest rates.
As is the case in any commodity-based industry, the cannabis industry will eventually be dominated by a few larger players, while leaving limited opportunity for some “craft” producers.
The sector has been consolidated over the last five years through mergers and acquisitions (M&A), such as Tilray Inc (NASDAQ:TLRY)'s US$56 million acquisition of Hexo Corporation (NYSE:HEXO) in June 2023, and as many other smaller mom-and-pop operators go out of business.
To survive, companies have been forced to cut their staff, sell off assets, and diversify their portfolios, with Aurora Cannabis Inc (TSX:ACB, NASDAQ:ACB) announcing in August it intends to start selling orchids and Tilray expanding its footprint in the beverage industry by acquiring eight brands from Anheuser-Busch.
So, it’s no surprise that five years post-legalization Canadian cannabis stocks are struggling.
Shares of Alberta-based Aurora are currently trading at a meagre C$0.70 compared to about C$156 five years ago, while shares of Ontario-based Canopy Growth Corporation (TSX:WEED, NYSE:CGC) have fallen from about C$61 per share to C$0.93 today.
Tilray, SNDL (NASDAQ:SNDL), OrganiGram Holdings (TSX-V:OGI, NASDAQ:OGI), Cronos Group Inc (NASDAQ:CRON, TSX:CRON), and TerrAscend Corp. (CSE:TER, OTCQX:TRSSF) shares have followed the same trend, now trading at a fraction of their former value.
Since its debut on the NYSE Arca in April 2019, the Advisorshares Pure Cannabis ETF, the holdings of which include Canadian and U.S. cannabis companies, has declined by almost 90% from about $US25 to about US$3.
Contact the author at emily.jarvie@proactiveinvestors.com
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