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Rising Trend of Cannabis License Revocations in Canada Signals Industry Shift
T he cannabis industry within Canada is currently witnessing a notable trend that could potentially culminate in a record-setting number of federal licenses being rescinded within this fiscal year, a movement that is predominantly initiated by the companies holding these licenses themselves. This phenomenon has been illuminated by the latest figures released by Health Canada, the federal department responsible for public health.
During the initial half of the current fiscal period, which encompasses April to September, there have been 42 licenses revoked by Health Canada. Such a rate suggests that the industry is on a trajectory to exceed the total of 74 licenses that were rescinded in the entirety of the previous fiscal year of 2022-23.
To provide a historical context, the fiscal year of 2021-22 saw the revocation of 50 licenses, a number which significantly exceeded more than twice the amount observed in the year prior, with only 22 licenses being revoked. This escalation points to a trend of increasing revocations over the past few years.
Looking back to the fiscal year of 2019-20, which was notably the first complete fiscal year after the legalization of adult-use cannabis, only three licenses held by cannabis businesses were revoked. The stark increase in revocations since that period is indicative of the evolving dynamics within the cannabis industry.
The rationale behind these numerous revocations is multifaceted. One component of this trend is the result of the intensely competitive and overpopulated recreational cannabis market, which continues to seek a balance within its supply and demand dynamics. Additionally, companies that are primarily focused on medical cannabis are encountering significant challenges, as indicated by industry insiders.
It is imperative to note that while the companies themselves have solicited a predominant portion of the license revocations for this year, a smaller segment of the revocations in preceding years was a direct consequence of noncompliance with the regulatory frameworks established by Health Canada. For instance, the year 2020 saw the revocation of the licenses of Alberta Green Biotech as a case in point.
Furthermore, there is a growing trend among businesses to not renew their federal cannabis licenses, allowing them to lapse. Presently, within just the first half of this fiscal year, 14 licenses have not been renewed upon their expiration. This compares to the entire fiscal year of 2022-23, where a total of 11 licenses were allowed to expire.
This pattern of revocations and non-renewals of licenses can be perceived as a significant restructuring phase within the Canadian cannabis industry, reflecting its journey towards achieving a stable and compliant market environment.
Changes in Canadian Cannabis License Status by Year
The proportion of federal cannabis license holders departing from the Canadian cannabis industry has exhibited a consistent upward trajectory commencing in 2018, coinciding with the commencement of adult-use sales during that year.
It is noteworthy, within a formal context, that a significant portion of the licenses that have been revoked within the regulated domain were terminated at the explicit request of the respective license holders. This pivotal information was thoughtfully conveyed to MJBizDaily through an official communication from a representative of Health Canada, delivered via electronic mail.
Furthermore, the spokesperson for Health Canada thoughtfully augmented this disclosure by underscoring a significant nuance regarding the data in question. Specifically, while the data does indeed encompass the tally of licenses that have been subject to revocation, it does not necessarily reflect the corresponding number of license holders who have chosen to withdraw from the market. This distinction is of paramount importance, as it hinges on the intricacies of licensing arrangements within the sector.
In elucidating this intricacy, Health Canada expounded that a license holder, by design, possesses the potential to hold multiple licenses concurrently. Hence, it is plausible that one or more of their licenses may either undergo natural expiration or be subject to revocation for diverse reasons. Yet, the license holder can persist in active participation within the market landscape by the remaining licenses that remain unaffected. Such a multifaceted understanding underscores the nuanced nature of licensing dynamics within the purview of Health Canada’s regulatory framework.”
lf way through this year’s fiscal year, 14 such permits already have expired.
Throughout the entirety of the fiscal year 2022-23, a total of 11 licenses reached their expiration date.
Closing Facilities
Over the recent years, there has been a noticeable trend where numerous prominent and sizeable cultivation facilities, often considered flagship establishments within the cannabis industry, have undergone closure. This strategic decision by businesses has been primarily driven by the imperative need to curtail excessive production capacity, a requirement precipitated by the industry grappling with a substantial oversupply of cannabis products, particularly in the low- to mid-level market segments.
One notable example is the Canadian licensed producer SNDL, which recently executed the closure of its cannabis cultivation facility located in Olds, Alberta. This facility, bearing an impressive valuation of 102.5 million Canadian dollars (equivalent to USD 74 million), held the distinction of being associated with three licenses of significant import. These licenses encompassed the realms of medical sales, catering to the healthcare sector’s needs, and cultivation geared towards the burgeoning recreational market.
Furthermore, within the same vein of strategic restructuring, the renowned Canopy Growth Corp. undertook the cessation of operations and subsequently divested its flagship cultivation facility situated in Smiths Falls, Ontario, earlier this calendar year. This particular facility was similarly equipped with permits encompassing medical sales, catering to the healthcare sector’s needs, and general cultivation activities.
Notwithstanding the aforementioned restructuring efforts, it is pertinent to note that Canopy Growth Corp. remains a substantial player in the Canadian medical cannabis landscape. Indeed, the company’s performance is indicative of its continued prominence, as it is widely recognized as one of the largest purveyors of medical cannabis within Canada. This is exemplified by their commendable medical sales, which totaled CA$14.4 million in the quarter spanning April to June, underscoring their continued commitment to servicing the medical cannabis market segment in the country.
Declining Health
As informed by multiple sources held in high esteem within the sector, there has been an alarming trend wherein the escalating frequency of licensees ceasing operations could very well be indicative of a deeper and more disconcerting shift within the industry. This unsettling trend appears to coincide with a discernible reduction in the procurement of medicinal cannabis through officially sanctioned medicinal avenues by the patient populace.
This emerging situation carries considerable consequences, particularly for business proprietors operating within this distinct segment of the cannabis industry. The ramifications of such a transition are far from trivial, as they possess the potential to significantly impede the developmental trajectory and long-term viability of businesses engaged in this sector.
To consider a historical perspective, the year 2018 was marked by a pivotal legislative event in Canada: the official sanctioning of recreational cannabis usage. This event was greeted with significant optimism for prospective expansion within the sector. Concurrent with this legislative progression, there was an impressive tally of 345,520 active medical client registrations documented with federal license holders.
Nonetheless, as the timeline progressed to the year 2023, a considerable retrenchment in these figures has been recorded. Active registrations have receded to 212,700, a descent which translates into a steep reduction of about 38%. Such a pronounced downturn serves as a vital barometer for the transmutation of market forces within the domain of cannabis commerce.
This downturn, it must be noted, is not limited to the enumeration of registered clientele. There exists a simultaneous decline in the fiscal throughput of medicinal cannabis, lending further evidence to the expansive pattern of a contracting medical cannabis marketplace. This decrease in commerce not only destabilizes the present market equilibrium but also projects a concerning outlook on the fiscal sustainability of the medical cannabis sector.
The complexity inherent in this predicament is multifaceted, and its impact is extensive, spanning a diverse array of stakeholders that includes cultivators, distributors, patients, and regulatory bodies. This state of affairs accentuates the imperative for a comprehensive and sophisticated analysis of the prevailing market dynamics and compels a considered strategic engagement from all industry entities to adeptly steer through the intricacies of this shifting terrain.
More Canadian Cannabis Companies Leaving the Industry Over Time
A cumulative count of 191 federal cannabis licenses in Canada were subject to revocation during the period spanning from 2018 to September 2023, with an additional 31 licenses having lapsed due to expiration.
During the fiscal year denoted by 2019 within the Gregorian calendar, the sales figures for Canadian medicinal cannabis reached a noteworthy cumulative total of approximately 603 million Canadian dollars, as elucidated by the statistical data compiled and disseminated by Statistics Canada.
After this period, a comparative analysis of the sales figures for a span encompassing the mid-point of 2022 to the corresponding mid-point of the year 2023—a timeframe encapsulating the most recent quartet of sequential fiscal quarters for which data is available—indicates a marked decrement. The sales had experienced a considerable contraction, descending to a sum of 381 million Canadian dollars. This precipitous decrease equates to a significant diminution in revenue, approximating a 37% downturn in the aforementioned timeframe.
Erin Prosk, who occupies the esteemed position of president and also holds the distinction of being a co-founder at Santé Cannabis—a medical clinic with operations in the Canadian province of Quebec—commented on the situation. Ms. Prosk articulated that there exists a subset of smaller-scale companies that pursued the attainment of licenses to vend medicinal cannabis, motivated by an aspiration to circumvent the myriad challenges that are endemic to the recreational cannabis market.
“Many businesses hold the belief that entering the medical sales sector offers a less challenging avenue to enhance their revenue, but the fact remains that only a tiny fraction initiates sales,” commented Ms. Prosk during a telephone interview.
Ms. Prosk upholds the conviction that there has been an uptick in the utilization of medicinal cannabis—a stance she maintains even after taking into consideration the consumers who procure cannabis for medicinal reasons but do so via outlets catering to the recreational market.
After the legalization in the year 2018, there has been a surge in the proliferation of recreational cannabis dispensaries throughout the expanse of Canada, with the number surpassing 3,500. Concurrently, the pricing trajectory for products within the adult-use category has demonstrated a more rapid depreciation when juxtaposed against the price points sustained by medicinal cannabis.
“The medical numbers we observe are representative of purchases conducted exclusively through entities holding medical sales licenses,” Ms. Prosk elaborated.
Hence, the panorama that unfolds before us is one wherein there is a discernible migration of patients—a movement of individuals who, whilst seeking cannabis for medical objectives, are electing to procure their supplies through avenues originally designated for recreational use.
“I propose that the narrative under consideration would experience significant divergence if, in conjunction with the establishment of recreational retail outlets, there had been a simultaneous effort to facilitate cannabis access through pharmacies,” Ms. Prosk postulated. This contemplation of alternative regulatory frameworks suggests the potential for a landscape in which the medical and recreational sectors could coexist with enhanced synergy and improved patient accessibility.
