From Canada’s Legal High, a Business Letdown

An employee trims cannabis buds at Canopy Growth in Smith Falls, Canada, Nov. 29 2019. When Canada became the first major industrialized nation to legalize recreational marijuana, visions of billions in profits sent the stock market soaring, but the value of shares in the country's six largest marijuana companies has tumbled by an average of 56% in the first year. (Chris Wattie/The New York Times)

Ian Austen

c.2019 The New York Times Company


SMITHS FALLS, Ontario — When Canada became the first major industrialized nation to legalize recreational marijuana, visions of billions of dollars in profits inspired growers, retailers and investors, sending the stock market soaring in a so-called green rush.

A year later, the euphoria has vanished.

That is because those who have invested have generally lost money. During the first year after legalization, the value of shares in Canada’s six largest marijuana companies tumbled by an average of 56%, according to stock price data.

The marijuana companies said a turnaround is only a matter of time, hoping a big step along the way will come Dec. 16, when marijuana-laced drinks and foods will arrive in the legal market.

But the problems that plagued the first year remain.

One is that the provincial governments in Ontario and Quebec, whose residents account for about two-thirds of Canada’s population, have opened or licensed legal pot shops at a glacial pace — despite a clear demand. Potential customers are still underserved with just 24 legal marijuana shops for Ontario’s 17.5 million residents. So many are still buying on the black market.

And freed from taxation, the black market is generally cheaper across the country.

Another problem, many in the industry said, is that the elaborate regulatory structure for legal cannabis has been an impediment to sales. Canada’s regulations were designed only to decriminalize marijuana use, not necessarily encourage it. The result is a system that mimics the country’s approach to tobacco and largely blocks marketing and advertising.

For companies, the economic growing pains have been tough. Take Canopy Growth, the biggest Canadian grower. These days, construction is booming at the plant, with new additions being built.

But during the first six months of its current fiscal year, Canopy lost 1.6 billion Canadian dollars. Bruce Linton, the company’s founder, former chairman and chief executive who was once the industry’s de facto spokesman, was fired earlier this year.

Canopy struggled with converting greenhouses in British Columbia and Quebec that once grew vegetables into ones producing something to smoke. It built costly systems to turn lower-quality plants into oil, only to find that Canadians overwhelming prefer to smoke the plants’ dried flower buds.

And costs spiraled upward as it rushed to meet the new market’s demands.

Canopy’s shares, which hit CA$70 during the lead-up to legalization, are now down by about 66%.