Alex Blumenstein is chief executive officer and co-founder of Leaf Forward, a cannabis business accelerator.
In the year before cannabis was legalized in Canada, and for several months after, industry spirits were as high as the new companies’ market caps. Investors were realizing tremendous returns; even retail investors were able to put capital into a public company and outperform the market in a few short months. Everyone was making money, except for the cannabis companies themselves.
Now, a year after legalization, a harsh reality is setting in as we enter our second act. Well-capitalized cannabis firms aren’t living up to expectations, with revenues coming up short of the companies’ guidance and analyst predictions, a result of factors including struggles with growth (both literal and metaphorical), a slow rollout of retail outlets and regulations that put strict limits on how companies can market their product. Coupled with a handful of scandals – Vaughan, Ont.-based producer CannTrust’s illegal grow rooms being the most prominent – this has caused the bloom to fade across an industry that was throwing itself lavish parties not too long ago.
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In recent weeks, CannTrust has laid off 140 employees, about a quarter of its work force. Quebec-headquartered producer Hexo recently laid off 200 team members. These likely won’t be the only layoffs – it’s not a stretch to predict we will see entire companies go under over the course of the next year.
It’s a common adage in the startup world that failure leads to success. Just look to the Kitchener-Waterloo region, which has experienced wild growth in startups, becoming a capital of innovation to rival Silicon Valley, even after Research in Motion (now BlackBerry Ltd.) began its decline a decade ago.
I’m not celebrating the failure of any business – investors lose money, founders lose pride and, most importantly, people lose jobs, putting themselves and their families in difficult circumstances. A lucky few, however, are in the right spot at the right time to start something of their own.
Those who have recently lost their jobs are part of a tiny cohort of people who were part of a new industry from the beginning and understand its workings inside and out. A sectional grower develops a new method of transplanting. A packaging supervisor, fed up with the waste generated, dreams up better sustainable packaging. A marketer, frustrated by their company’s inability to connect with customers, launches a new model for compliant communications.
Motivated by time on their hands, a bit of anger and a chip on their shoulder, we’ve just witnessed the birth of the next generation of cannabis entrepreneurs.
Out of the failure of the early big players in cannabis will be the third act of Canadian cannabis. The optimism of Act 1 has shifted to what seems like an inescapable pessimism of Act 2. We hear the refrains from the doubters: The window has been missed, the Americans will be the innovators and brand builders, Latin America will be the producers and Europe will be the high-value medical market.
But the promise of Canada’s first-mover advantage was never about growing and exporting cannabis product around the world. It had and always should be premised on deploying our intellectual property to global markets. Canadians shouldn’t sell themselves short – we have an unmatched pool of talent that once again finds itself in the right places at the right time.
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