(This is the first installment in an occasional series on profits, losses and the burgeoning Canadian cannabis industry. Part 2 is here.)
The most profitable cannabis businesses in Canada are owned by various levels of government, according to MJBizDaily research.
At the same time, cumulative private-sector losses easily exceed 16 billion Canadian dollars ($12.5 billion), led mostly by big producers such as Smiths Falls, Ontario-based Canopy Growth Corp., Edmonton, Alberta’s Aurora Cannabis and Tilray Brands, which has its executive offices in New York City.
The largest companies are yet to become profitable, even though:
- Investors poured billions of dollars into the industry before and after legalization in 2018.
- The federal government shields Canadian producers against foreign competition in the medical cannabis market.
- Canada’s federal government showered the same corporations with hundreds of millions of dollars in federal grants – money that does not have to be repaid – lobbying records reviewed by MJBizDaily show.
MJBizDaily examined financial reports for dozens of publicly traded and government-owned businesses. The research doesn’t include privately owned companies, which generally do not disclose financial statements.
The most profitable marijuana business in Canada thus far has been the Ontario Cannabis Store (OCS), which expects to earn roughly CA$262.8 million ($200 million) over a three-year period ended in the March 2022 financial year, according to the province’s fiscal outlook.
The OCS, owned by the province and whose board is appointed by government, is the monopoly cannabis wholesaler for Ontario’s 1,600-plus privately owned retail stores.
The next most profitable cannabis business in Canada is Société québécoise du cannabis (SQDC), which has earned around CA$168.5 million in net income since legalization.
The SQDC is Quebec’s government-owned monopoly cannabis wholesaler and retailer. Unlike Ontario, Quebec does not allow privately owned cannabis stores, choosing instead to employ a government monopoly over all retail sales, including online.
The BC Liquor Distribution Branch (LDB), whose operations include cannabis wholesale and some retail in British Columbia, is the third most-profitable business.
The government entity has earned roughly CA$36 million in net income from its cannabis business, according to its recent annual report.
New Brunswick’s province-owned cannabis wholesaler/retailer, Cannabis NB, has also reported healthy income.
Cannabis NB is estimated to see cumulative net income reach CA$31.7 million for 2020-21 through 2021-22.
Together, the four government-owned corporations pulled in just under CA$500 million in net income for their provinces.
Where the profits go
The government-owned cannabis businesses remit their profits back to their respective provinces.
In the case of the SQDC, all revenue after costs is entirely remitted to the Ministère des Finances in the form of a dividend.
The dividend is then reinvested, mainly in cannabis-related prevention efforts and research, per SQDC’s annual report.
In addition, SQDC collects consumer and excise tax revenue, which was estimated at CA$195.4 million. About $139 million goes to the Quebec government and $56.4 million to the federal government.
In Ontario, OCS profits also end up back in public hands.
In its annual report, the OCS said it’s “proud of its financial contributions that support important public services, particularly throughout the COVID-19 pandemic, at a time when front-line services have been essential to the economic and social health of our province.”
Amanda Winton, OCS spokesperson, said the organization is a self-funded, revenue-generating government business enterprise whose annual revenues are included in Ontario’s Public Accounts.
“Under the Ontario Cannabis Retail Corporation Act, 2017, net profits from the OCS may be paid into the Consolidated Revenue Fund and made available to the Ontario government to support its fiscal priorities. These revenues help pay for important public services that benefit all Ontario residents,” Winton said.
“Our priority is to divert consumers away from the illegal market, while operating an efficient business that delivers value for Ontario taxpayers.”
Unlike cannabis businesses owned by Canadian governments, private-sector profits have been few and far between.
Cannabis producers face stiff government regulation, but have made numerous mistakes of their own, such as:
- Losing hundreds of millions of dollars on bad greenhouse investments, leading to “balance sheet adjustments” worth billions.
- Selling less than 20% of their production since adult-use legalization, which is unsustainable for any agricultural business.
- Destroying vast quantities of inventory, at least 900 million grams of unpackaged dried cannabis since legalization.
- Massive overproduction. The total amount of dried cannabis stored by licensed producers, wholesalers and retailers soared to 1.4 billion grams as of the end of last November.
Not all large producers have faced those challenges.
One of the most successful federally licensed mass producers has been Delta, British Columbia-based Pure Sunfarms, a subsidiary of Florida-headquartered vegetable grower Village Farms International.
Village’s Canadian cannabis business has approximately broken even, on a net income basis, over the past couple of years.
Cannabis producer Redecan reported an annual profit before it was acquired by Quebec-based Hexo Corp. in 2021.
However, Redecan, now a Hexo subsidiary, lost CA$91,000 in its latest quarter ended April 2022, according to financial records.
Decibel Cannabis Co. reported CA$1.7 million in net income in its financial year ended Dec. 31, 2021, compared with a CA$9.2 million net loss in the previous year.
Tilray has reported profitable quarters but not yet annually.
In a recent U.S. Securities and Exchange Commission filing, the company admitted that it “began operating in 2014 and have yet to generate a profit.”
Anindya Sen, an economics professor at the University of Waterloo in Ontario, said the government doesn’t need to monopolize key parts of the cannabis supply chain to extract “rent” from the industry.
He said governments could extract the same amount of revenue from businesses via tariffs and other means, as it is evidently extracting from the industry by monopolizing essential portions of the supply chain, such as wholesale distribution.
“(The government) will still be getting the same amount of profits through a wholesale levy,” Sen said. “Then you still have the benefits of a private market, with innovation and employment opportunities, being an engine of economic growth.
“I can’t say that, in the long run, having a government monopoly is beneficial. In the short run, it might make sense to add market stability.”
If you have leads relating to this story, please email Matt Lamers at email@example.com.