Ontario, Canada-based cannabis producer Canopy Growth’s announced production cuts could help ease the nation’s oversupply issues as well as offer lessons for other operators on how to compete in a newer market.
The company is closing two greenhouses in British Columbia, which will result in 500 job losses.
As a result, Canada’s total licensed indoor grow space also will decrease roughly 7%.
As far back as 2017, Canada licensed more than enough capacity to meet projected recreational demand, but companies such as Canopy continued to expand.
Shareholders are now demanding returns on their investments beyond just promises, and that requires a shift in strategy for companies that haven’t been turning profits.
“Canopy’s capacity cut represents some newfound discipline in an oversupplied market that is growing more slowly than expected,” said Mike Regan, an analyst with Marijuana Business Daily’s Investor Intelligence.
“New CEO David Klein and his team have brought fresh eyes to the Canadian cannabis business and decided to eliminate more than half their indoor capacity and nearly a third of their total growing area, while significantly increasing lower-cost outdoor production – the exact opposite of what much of the industry has done for the past few years.”
By shifting focus to outdoor growing, Canopy still dominates Canadian supply (it holds 27% of the licensed outdoor grow space) while reducing overall costs.
Decreasing the cannabis glut in the overall market should also help to boost prices, though the announced production cuts won’t be enough to fully offset Canada’s oversupply issue.
Other key takeaways for cannabis businesses:
- Always try to reduce cost per gram in production, regardless of how or what you grow. This will position your company to be more competitive for the long term. If you can generate your own cash from existing operations, you don’t need to worry about raising money from investors.
- Focus on your core competency – and do that well. If you’re a low-cost, high-quality producer, consider wholesaling; if you’re better at distribution and branding, consider buying wholesale. While nascent markets lend themselves to vertical integration, mature markets typically do not.
- The land-grab approach to growth has an expiration date – and it’s rapidly approaching for most markets. U.S. markets might be on a different legalization timeline, but investors are taking cues from Canada.