Many Canadian licensed producers might never achieve profitability and eventually lose ground to their American counterparts because of oversupply and onerous marketing restrictions — the combination of which will lead to commoditization, according to some investors in the cannabis space.
“There are 150 companies, millions of square feet of greenhouse space presumably coming online in the next three to five years, and just 35 million people. This is going to turn into the microbrewery business where no one makes any money,” said Igor Gimelshtein, the former chief financial officer of MedReleaf Corp., one of the first licensed producers in Canada that was acquired by Aurora Cannabis Inc. just under a year ago.
Gimelshtein, who is currently a partner at Zola Global, a family office that focuses on investing primarily in the American cannabis space, said he was eager to sell Medreleaf last year because he believes an oversupply situation will be forthcoming in the next few years.
“We thought the situation in Canada was getting ridiculous, the valuations were crazy. If you could brand your products the way you can in the U.S. it could create strong pricing and differentiated margins, but you can’t do that here,” Gimelshtein told the Financial Post recently.
It is a grim view of an industry that has achieved stratospheric valuations over the past two years due largely to the belief that Canadian cannabis companies — benefitting from being in the first G7 country to legalize cannabis nationally — would carve out a first-mover advantage globally.
Read more at business.financialpost.com