The Perfect Storm: How Over-Regulation is Killing Canadian Cannabis

I hate to be all ‘doom and gloom’, but there is a storm brewing and it doesn’t look pretty for the Canadian cannabis industry. Many analysts (like yours truly) predict that the CannTrust scandal could be a catalyst for a broader set of structural issues that may leave a permanent dent in our industry if not swiftly dealt with.

CannTrust, a celebrated Canadian company whose name appears ironic in today’s light, was caught by Health Canada holding thousands of kilos grown in rooms that were pending approval, damaging the reputation of the Canadian cannabis industry and its regulatory system as a whole. This is not good for business. However, that is not the end of it.

CannTrust broke the rules, and so there should be legal and financial repercussions for them, but it turns out that for those that do follow the rules laid out by Canadian regulators, the financial future may not be all that more certain.

In previous articles, I’ve talked about the quality crisis in the legal Canadian cannabis industry and the regulatory hurdles which have led to this issue. The problem has gotten so bad that in recent years, that the term ‘government weed’ has arisen among consumers as being synonymous with ‘expensive, low-quality weed.’ Now, in the wake of our current mess, a deeply perplexing question begins to arise: how can the legal Canadian cannabis industry even dream of fixing its broken image when regulators have hand-cuffed producers and retailers from brand building?

That’s right, brand building—even basics, like being able to freely display your logo on the product you make, or telling people about what makes your product special—is forbidden by Canadian law. Add to this the fact that our visibly shaky regulatory system also makes it nearly impossible for legal producers to match the quality and price of the black market, and there you have it: the makings of the perfect storm.

What all this could mean in an international context is an endemic lack of opportunity to generate recognizable Canadian brands that inspire trust in the consumer. Consumer brands are being built as we speak but none are from Canada, despite the fact that Canada was miles ahead of the US in terms of implementing federal regulations. To say that we are missing the boat is an understatement…for us Canadians this is more akin to missing our own wedding. Not cool man.

Although the largest regulated cannabis markets in the world (for now) exists right across our southern border, Canadian companies don’t have access to those markets until the US federal government chooses to launch a national regulatory framework. This is why Canadian cannabis companies only do business with federally regulated markets like Germany. However, these arrangements with European countries are likely to be short-lived once internal European supply sources are established, whilst even deeper changes to the global supply chain are due once more temperate regions of the planet (able to produce at lower costs) become integrated into a global framework.

The unfortunate conclusion in the eyes of many investors is that Canadian cannabis may not be the best place to put your money for long term growth unless something changes. At the moment, our homegrown brands appear much less likely to be able to build the recognition and credibility needed to dominate foreign markets once open for business. If nothing is done, large American consumer brands will likely be taking a good portion of our Canadian marketplace and occupying the number one spot on the global stage. Hmmmm…sounds familiar.

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