Canadian cannabis industry on track for record number of licensee exits

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Image of a woman's hand holding a cannabis leaf in front of a Canadian flag

(Photo by Roman/stock.adobe.com)

The Canadian cannabis industry is on pace to see a record number of federal licenses revoked this fiscal year, largely at the request of the companies themselves, according to new data from Health Canada.

The federal agency revoked 42 licenses during the first six months of the current fiscal year – April through September – putting the industry on pace to surpass the 74 that were revoked in the 2022-23 fiscal year.

In 2021-22, 50 licenses were revoked, more than double the previous year’s 22.

Only three cannabis business licenses were revoked in 2019-20 – the first full fiscal year of adult-use legalization.

The revocations are partly the outcome of a hotly competitive, oversaturated recreational industry still in search of equilibrium and struggling medical cannabis-focused companies, industry sources say.

While most of this year’s revocations are at the request of the respective businesses, a small number were revoked in previous years because of regulatory noncompliance.

In 2020, for instance, Canada revoked the business licenses held by Alberta Green Biotech.

Businesses are also allowing an increasing number of federal cannabis licenses to expire.

Only half way through this year’s fiscal year, 14 such permits already have expired.

In all of 2022-23, 11 licenses expired.

“It is worth noting that most of the licenses that were revoked, were revoked at the request of the license holder,” a Health Canada spokesperson told MJBizDaily via email.

The spokesperson added that the data includes the number of licenses revoked but not necessarily the number of license holders exiting the market.

“Since a license holder can have more than one license, one or more of their licenses could expire or be revoked and that license holder could still operate under remaining licenses and be active in the market,” according to Health Canada.

Facility closures

Several large flagship cultivation facilities have been shuttered over the past few years, as businesses look to shed costly production capacity while the industry continues to work through a large oversupply of low- to midlevel cannabis.

Canadian licensed producer SNDL recently closed its cannabis cultivation facility in Olds, Alberta.

That facility, valued at 102.5 million Canadian dollars ($74 million), had three licenses attached to it.

The permits covered medical sales and cultivation slated for the recreational market.

Canopy Growth Corp. also shut down and sold its flagship cultivation facility in Smiths Falls, Ontario, earlier this year.

That facility also had permits for medical sales and general cultivation.

For its part, Canopy is still thought to be one of the largest sellers of medical cannabis in Canada, with medical sales of CA$14.4 million in the April-June quarter.

Medical decline

Some industry sources say the record number of licensee exits also reflects a declining number of medical patients buying cannabis through medical channels.

That, in turn, is creating major obstacles for entrepreneurs in that subsector of the cannabis industry.

When Canada legalized recreational cannabis in 2018, there were 345,520 active medical client registrations with federal license holders.

By 2023, that number had declined to 212,700 - a 38% drop.

The same trend is also present in medical sales.

In calendar 2019, sales of Canadian medical cannabis totaled CA$603 million, according to Statistics Canada data.

But from mid-2022 to mid-2023 - the most recent four consecutive quarters of data - sales had fallen to CA$381 million, marking a 37% decline.

Erin Prosk, president and co-founder of the Santé Cannabis medical clinic in the province of Quebec, said that some smaller companies went after a medical sales license in the hopes of avoiding the challenges facing the recreational market.

"Many companies think medical sales are an easy route to more revenue, but very few actually start selling at all," she said in a phone interview.

Prosk believes there's been an increase in medical cannabis use after accounting for consumers who are buying marijuana for medical purposes in the recreational market.

Since 2018, well over 3,500 recreational cannabis stores opened across Canada, and adult-use prices fell faster than those for medical marijuana.

“The medical numbers we see are purchases from medical sales license holders," Prosk said.

"So what we really see is a huge migration of patients who are accessing cannabis for medical purposes but are choosing the recreational route.

“I think we’d be telling a different story if, at the same time as (recreational) retail stores were introduced, pharmacy access was introduced at the same time.”

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.