HIGHLIGHTS
- Cannabis industry’s capital challenge expected to continue in 2020
- Brand development and retail sales seen improving next year
- Offshore money beginning to flow into Canada’s cannabis industry
A revival in investment will come to Canada’s struggling cannabis industry, but that will likely not come until after 2020, a year that is expected to challenge many young companies that are in need of cash injections. The year will see an improvement on brand development and retail sales, however, as more licensed stores open, a panel of Canadian executives said at MJBizCon in Las Vegas.
The industry’s need for capital is “bringing badly needed focus on the industry,” said Mitchell Osak, a regional consulting partner and leader of MNP’s Cannabis Advisory practice.
However, it is not all bleak. Mr. Osak said he is starting to see offshore money, particularly from Asia and the United Kingdom, enter the Canadian cannabis space.
“There’s a lot of new money coming in and the best placed companies will be able to position themselves for growth,” he said.
Many large non-cannabis companies and investors “have been sitting on the sidelines” as they study the newly legalized industry and watch the regulatory framework change, and will likely invest in cannabis in the future, Mr. Osak said.
But the near future will continue to be a struggle for companies that have failed to meet investors’ expectations, in part due to the smaller-than-expected number of licensed retail stores that opened in the first year of legalization.
“We are going to see some catastrophic losses in Canada,” said Jeannette VanderMarel, chief executive of Beleave, referring to 2020 expectations.
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Jeannette VanderMarel, chief executive of Beleave (right); Mitchell Osak, a regional consulting partner and leader of MNP’s Cannabis Advisory practice (second from right); Torsten Kuenzlen, chief executive of Sundial Growers (second from left).
In the meantime, expectations for a significant number of stores to open in 2020 and the launch of new products, such as cannabis edibles and concentrates, will help companies improve sales, grow their brand recognition, and target new customer bases.
“Great product is the foundation of all the products that will succeed. It’s a marathon to create and build those brands,” said Torsten Kuenzlen, chief executive of Sundial Growers.
“I think there will be a branding game play out.”
While Canada’s strict marketing regulations make marketing and brand recognition challenging, “word of mouth” has worked well for some companies, said Mr. Osak.
“If you can figure out how to leverage that referral, that is very powerful and a lot of good Canadian companies are doing that,” he said.
While branding and marketing rules could loosen in time, this is not expected in 2020.
The newly legalized, so-called Cannabis 2.0 products, such as edibles and vaporizers, are expected to reach store shelves in January.
“It’s going to be a boon for the industry but it’s going to be choppy waters,” Mr. Osak said, adding that edibles are significantly more profitable for producers than dried flower.
“Companies that get it right … will do well.”
Ms. VanderMarel said Beleave aims to appeal to non-traditional cannabis consumers, such as the women who are the main purchases of their households.
“We need loyal consumers. We think marketing to women is important,” she said.