Many marijuana businesses are struggling across the country

Canada continues to be one of the few nations globally allowing legal and regulated access to recreational marijuana. However, five years after legalization, the country's cannabis industry is grappling with survival.

George Smitherman recalls purchasing his initial legal gram of cannabis in October 2018 from a Tweed shop in Newfoundland. The cannabis company had made headlines two years earlier for a marketing deal with US rapper Snoop Dogg, seen as a promising development for the marijuana industry.

The shop, according to Mr. Smitherman, was "beautiful," resembling a spa or jewelry showroom. Despite the striking space, all marijuana products in Canada are sold in generic packaging with plain, government-issued labels.

Five years later, the industry faces economic challenges far from the early enthusiasm. For instance, Aurora Cannabis, one of Canada's largest cannabis manufacturers, has announced diversification into selling orchids. In August, Canopy Growth sold its multi-million dollar Ontario headquarters back to its original owner, Hershey Canada. Additionally, cannabis producers like Aurora Cannabis and Canopy Growth have laid off thousands of workers to cut costs, with minimal to no profit.

Experts and industry leaders point to overregulation, a delicate balance between public health and industry growth. Others argue there's an oversupply issue, with too many players and excess production far surpassing demand. As Canada is one of the few countries allowing recreational cannabis federally, domestic producers face limited opportunities to make profits beyond Canada's borders.

Former Ontario politician George Smitherman, now heading the Cannabis Council of Canada, acknowledges the early challenges. There was no global roadmap, he says, as no other country had attempted such a large-scale legalization of recreational cannabis.

When Canada passed the Cannabis Act in 2018, a significant goal was shifting users from the illicit market to a legal, regulated one. The aim was to curb access for minors and limit illegal trade money. The economic argument also stood, suggesting benefits for Canadians and the overall economy.

Canada's domestic recreational market is valued in the billions, adding significantly to the GDP. However, investors reportedly lost over C$131 billion in cannabis businesses.

Michael Armstrong, a cannabis business researcher at Brock University in Ontario, describes it as a classic boom and bust scenario. Early production challenges led to an oversupply, downsizing, and reliance on the illicit market. On the retail side, profitability initially thrived, but increased competition led to price reductions and incentives.

As of 2023, Canada has approximately 3,600 licensed retail cannabis stores and 970 licensed cannabis producers, with few demonstrating profitability. Only 20% show positive cash flow, according to a survey by the Cannabis Council of Canada. Smitherman describes the current business landscape as characterized by relentless attrition, turnover, and consolidation.