At first glance, Canada looks like a marijuana industry paradise given that the drug is fully legal throughout the country. So why do homegrown companies like Cronos (CRON 1.35%) continue to struggle there?
In this video clip from Motley Fool Live, longtime Motley Fool contributor delves into one major reason for this in an interview with Cannabis and Healthcare bureau chief Corinne Cardina Jurney. The video was recorded on Dec. 22.
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Corinne Cardina: How are Canadian companies like Cronos at a disadvantage in the U.S.?
Eric Volkman: Well, the big disadvantage is that they can't sell product here.
Again, marijuana is unambiguously illegal at the federal level, no matter what states do. Again, America, we have federal, states, they don't talk to each other -- whatever! They'll figure it out... maybe... eventually.
Canadian growers, producers, retailers are limited to Canada. The problem with Canada is, first of all, there's a lot of competition in every corner of the market, in every segment, from growers to retailers, and every segment has a lot of players. There's not an awful lot of elbow room, so it's like is claustrophobia. They're contained in this market that has its limits.
On top of that, the government, Health Canada specifically, over the past year they have improved, but the pace of licensing is still really, really slow. I think in mid-year , I don't know the exact number -- somebody hopefully will correct me -- but in mid-year, in the province of Ontario, which is at the same time the capital province, and by far the most populous province in the country, they had a grand total of 24 dispensaries for the entire province.
And it's not like the country suddenly woke up and legalized weed, they first started doing this, in the recreational sphere, now more than two years ago. There's no excuse for two years after initial legalization, you still only have a handful of dispensaries, and it's a big province, it's a big country. It's 24 dispensaries.
If you live in a fairly obscure town, it's possible that you have to drive a couple of hours away to buy licensed weed, so why would you bother?
That leads to a second problem which is in Canada the black market is still thriving. Companies have done well, combating this to an extent, by introducing budget product lines. The problem with those is that of course because they're budget lines, their lower margins and that doesn't help their profitability -- or lack thereof.
So yeah, Canadian companies are a bit contained and bottlenecked in their country.