2020 has been a rocky start for licensed cannabis producers in Canada as industry layoffs have plagued two of the worlds largest cannabis companies Aurora Cannabis, and now Canopy Growth.
Since legal cannabis’ inception in Canada late 2018, logistics have posed a problem for licensed producers of all scales. Regulatory requirements, and costs associated with getting licence approval has created barriers prohibiting many small businesses from entering the industry. For some of the larger, publicly traded companies, a lack of growth opportunity within Canada is resulting in massive industry layoffs, and in 2020 has resulted in over 1,000 lay offs and liquidation of Canadian production facilities.
Building a large scale, automated, regulatory compliant greenhouse carries a hefty price tag, we’re talking millions. Operational costs and overhaul included, the Canadian cannabis market is looking like a tricky place to navigate. Add a lack of clarity on production levels, returned stock, distribution network logistics and adjusting policies & regulations; it’s obvious, companies are scaling back their less savvy, more costly greenhouse operations to focus on cash cows and stable revenue. That includes other avenues within the Canadian cannabis industry, as well, focusing on international operations, and exports.
Early February, Aurora Cannabis was one of the first to announce layoffs in the hundreds. Following a second quarter loss of over $1.3 billion the interm CEO Micheal Singer announced 500 layoffs as part of a plan to restructure spending and adapt to inventory management levels that align with consumer demand and variable inventory levels.
The Canadian cannabis market is still in it’s infant phases, and it makes sense that demand is changing.
March 4, Canopy Growth Corp announced it’s plans to shut down two large greenhouse operations in BC, resulting in 500 worker lay offs in efforts to improve inventory level efficiencies. According to the Financial Post, Canopy Growth currently sits on over $600 million of inventory.
The two operations that have been discontinued include the Aldergrove and delta facilities, one of which was experiencing a significant number of community complaints.
A third facility planned for the Niagra (ON) on-the-lake has also been discontinued.
Nearly 17 months after the creation of the legal adult-use market, the Canadian recreational market has developed slower than anticipated, creating working capital and profitability challenges across the industry. Additionally, federal regulations permitting outdoor cultivation were introduced after the Company made significant investments in greenhouse production. The Company now operates an outdoor production site to allow for more cost-effective cultivation which will play an important role in meeting demand on certain products that rely on cannabis extracts. Following an organizational strategic review of production capacity and forecasted demand, the Company announced today that these facilities in Aldergrove and Delta, British Columbia are no longer essential to its cultivation footprint. Canopy Growth Announces Production Optimization Plan in Canada