While Canadian cannabis producers are preparing for the country’s roll out of recreational cannabis, they are also preparing for a potential shift in the market’s landscape.
On Nov. 20, 2017, Ernst & Young published a new report, How do you define your future in an undefined market?, providing insight into how 11 licensed producers view current and future factors affecting the market for Canadian cannabis producers, including regulations, capacity, strategy, operations, technology, investment, consolidation, competition, customers and stakeholders.
According to the report, a patchwork of provincial regulations and a slow license approval process are going to challenge licensed producers to adapt to regulations and prepare to scale up production capacity, but 37% of licensed Canadian cannabis producers are already focused on efforts to scale up production.
“Many companies are currently allocating available capital towards increasing scale of production, but recognize that there’s an opportunity to shift some of that investment towards technology and innovation in order to build a competitive advantage,” said Monica Chadha, EY Canada’s National Cannabis Leader, in a press release.
Competition and Consolidation
While technology and innovation will likely position some Canadian cannabis producers ahead of the competition, a majority of licensed producers believe that access to capital and the speed at which cultivation and distribution licenses are acquired will force 87% of the competition to be consolidated within the next three years.
According to Bruce Linton, CEO of Canopy Growth (TSX: WEED), “Only a handful are
intending to be successful, long-term companies … . So, over the long term, I see an industry with two or three major, relevant players and [a] bunch of craft producers.”
The most recent example of consolidation for Canadian cannabis producers is one that is still playing out — Aurora Cannabis (TSX: ACB) is attempting a hostile takeover of CanniMed Therapeutics (TSX: CMED) after CanniMed’s board of directors neglected to respond to the acquisition proposal by the proposal deadline.
Canadian cannabis producers should keep an eye on how the Aurora and CanniMed deal ends as it may be an excellent case study on consolidation that doesn’t go smoothly.