‘There’s just no money coming in’: Cannabis sector bracing for wave of insolvencies in 2020
Certainly, the excess supply, the price decline and the slow deployment of stores in Ontario have led to consecutive quarters of weak income for many licensed producers.
For their part, cannabis industry experts are preparing for a series of bankruptcies in the next year, as small and medium-sized businesses with low liquidity struggle to raise funds in the oppressed sector.
Ranjeev Dhillon, a partner at McCarthy Tetrault LLP and the firm’s cannabis group lead, express “We have had a busy few years, but next year we’re going to be busy for a different reason — we expect a few million dollars in legal fees from insolvencies and consolidation ”.
It should be noted that there are currently more than 200 cannabis companies in the cultivation, processing or extraction businesses, which mainly supply an internal market that has not yet crossed the $ 1 billion mark in annual sales.
True excess supply
Although cannabis sales have increased monthly since legalization in October 2018, the inventory has been growing much faster, resulting in excess supply and a decrease in prices.
That dynamic, along with a slow deployment in the number of cannabis stores in Ontario, which, to a large extent, drowned the supply chain, has led to consecutive quarters of weak income for many licensed producers.
In December, Wayland Group Corp., one of the first marijuana companies to obtain a crop license, applied for the protection of creditors. Two months earlier, DionyMed Brands Inc. had gone bankrupt after not paying the debt.
There is no doubt that the launch of new lines of new products as part of the legalization of groceries presents a significant risk to producers.
Most of the leading licensed producers, Canopy Growth Corp., Hexo and Tilray, have invested heavily in cannabis-infused beverages that will hit the market in the first quarter of 2020, but some industry observers predict that drinks could be a company completely failed.
A key aspect for the success of beverages and edibles with cannabis infusion is the start and compensation times: how long it will take the consumer to feel the “effect” of the product and then be sober.
Source: Vanmala Subramaniam | National Post