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Chris Naprawa is president of Khiron Life Sciences

The cannabis industry is going through a period of turmoil and it should be clear to all of us that expectations got badly out of synch with reality. But there’s no doubt that the cannabis market is a real global phenomenon and will continue to grow.

Over the past five years, the capital markets helped investors plow billions of dollars into cannabis companies so they could build assets and capacity as fast as possible. In Canada, licensed producers set out at a furious pace to build prison-like structures to grow thousands of kilos of cannabis.

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That’s what investors asked them to do.

In March of this year, those same markets decided, in unison, that we should value these companies like established retailers or a railway company. The switch in sentiment we are now seeing means that investors and capital have abandoned these companies.

A flaw was that capital flowed to those that were focused on producing ingredients at scale, rather than customer and patient needs. Now orphaned from capital, they are having to shuffle plans quickly as they cannot complete the work that the markets mandated them to do.

The firing of Bruce Linton from Canopy Growth was seen as a milestone in the demise of market exuberance. But the industry should be thanking him for the relentless drive and passion that he brought to the market. How many among us are brave enough to be a figurehead for an entire industry?

Canopy, in many ways, showed the market how you could build a global company at a pace rarely seen in any industry. Its balance sheet is a safety net that is the envy of the industry. A new CEO was recently announced to lead the company, but Bruce created something special and I think it is simply too early to put suits in charge of these growth companies; cannabis is still a Klondike industry.

What rational observer would expect any government to set up a marketplace that was competitive, fair and efficient? In Ontario in particular, the main beneficiary of the end of cannabis prohibition seems to have been the creation of another government-controlled monopoly, with all the lack of innovation that brings. Belatedly, we are now seeing conversations to open up the market in a meaningful way. Let’s hope that happens, and entrepreneurs get a chance to provide the services that the market plainly needs.

Statistics Canada reports that cannabis is a $6.5-billion a year market in Canada. That’s similar in size to the spirits industry and approaching wine in scale. One year after legalization, the industry generated more than a billion dollars in revenue, despite overly complex regulation, the absence of brands and advertising, packaging that makes industrial chemicals look appetizing, and in Ontario at least, a comical lack of retail distribution. Whoever thought it was a good idea to harvest your product and ship it to a warehouse where it can sit and dry out for months before it is sent to a consumer? Today the illicit market provides better selection, service and prices – and, for those that care, less packaging and waste. Don’t blame the cannabis companies for these restrictive measures holding back the market.

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But it isn’t all bad. The market is massive, global and real. It is now up to operators in Canada and around the world to navigate these realities and create thriving businesses that serve a vital, sustainable and growing global market.

In other words, it’s time to focus on the customer. In building Amazon, Jeff Bezos consistently talks about his company’s obsessive focus on the customer. Companies that have a relentless pursuit to satisfy their customers, and capital to see it through to the end will reap huge rewards.

I am lucky enough to travel the world, meet with investors, partners, customers, and market participants. There is no question that the cannabis market has durability. For the most part, it is a market coming out of the shadows.

It is far too soon to give up on this opportunity simply because regulators and Bay Street got it wrong on the first try. It would be far more comforting if there was such a thing as a predictable market that created a smooth curved chart from the bottom left to the top right. That is never the case. We all came to this party together, and when we recover from the hangover, there will be some amazing companies left standing that we can all be proud of.

Cannabis pro conference call: You're invited: Cannabis Outlook 2020 conference call on December 18
Cannabis pro conference call
Join Cannabis Professional's Jameson Berkow and guests Alanna Sokic, Keith Merker, and Nadia Vattovaz as we stress test the most important issues facing the legal cannabis in the new decade.

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