How do you define your future in an undefined market?
Insights and perspectives from Canada’s cannabis industry leaders
Canada is on the verge of legalizing cannabis.
The cannabis sector in Canada is laden with opportunities for Canadian licensed producers (LPs) and affiliated companies. However, players in this sector face an uncertain operating landscape that challenges even the most savvy and experienced business leaders. Many of the rules that will govern the recreational industry have yet to be finalized and capacity to meet consumer demand is an unknown. It’s a critical time for the cannabis sector, and an opportune moment to ask important questions about the future.
Maturity levels of LPs in Canada differ drastically, with few operating like a developed organization while the rest are nascent start-ups with the technical capabilities, but operationally underdeveloped. The ability to scale production to meet anticipated demand remains a challenge. LPs struggle to raise capital to support the cost of increased production and enhanced operations, without compromising margins and/or compliance with regulatory standards. And, given the current regulatory uncertainty, the amount of investment Canadian LPs are willing to make now varies.
Bruce Linton is the founder of Canopy Growth Corp., Canada’s largest cannabis producer. Like his competitors, Bruce is busy positioning his company in what is likely to be a highly competitive market. Canopy has raised more than $150 million in capital to date. We caught up with Bruce to talk about the coming legalization of cannabis for recreational use and get his thoughts on everything from competition and provincial distribution plans to hiring for growth.
The scalability of business models varies as well. Some are owned and operated by founders who understand the technology, crop yields and quality, but are not as strong on how to operate a thriving business. Others have the right operating model for growth, are responsive to government regulations and are investing to scale the business up. These differences present a challenge in itself, since the maturity level of the business affects its ability to capitalize on opportunities to scale and drive growth.
LPs will have to be able to compete with other established adjacent industries — such as tobacco, pharmaceuticals, alcohol and consumer products — which are likely to have an interest in entering the market for recreational cannabis. These companies have strong ties to capital, possess mature infrastructure, brand recognition and the knowledge of operating in a highly regulated environment. Despite the regulatory restrictions, consumers will eventually dictate how, when and what they want, as they have with other competing industries.
Most LPs are highly entrepreneurial, which is to be expected, but they will need to quickly organize talent and apply the formality, rigour and a lens for governance that established organizations do.
What the cannabis industry leaders are saying
We conducted a national study of the Canadian cannabis sector to determine how well existing licensed producers are prepared to support the cannabis industry post-legalization. We interviewed senior executives and a board member from 11 LPs with varying size, scale, revenue and value chain activities, and also sought insights of a government representative. In our discussions with LPs, we identified five key themes that provide opportunities for the cannabis industry.
Key considerations for licensed producers
Given current resources and business models, only a handful of LPs are expected to thrive post-legalization. To be a successful, long-term player in this sector, unlike any other industry, these companies will need to accelerate their operations and progression through a typical business lifecycle. As the industry matures, consolidation is likely to occur and the type of competitors and adjacent industries will also shift. Each phase of a company’s lifecycle can be conquered with finesse if they have the right talent, decision-making, commitment and partnerships.
Inside this report
- Current state of the industry
- Strategy and operations
- Technology and innovation
- Investment strategies
- Consolidation and competition
- Customers and stakeholders
- What does the future look like?
- Questions licensed producers should be asking