The Lessons From Legalizing Cannabis
"Businesses are still spending too much money in proportion to the amount of money that they're earning, and that's what burned large Canadian LPs"
Welcome to Four PM — a daily newsletter that provides cannabis industry news & interviews with cannabis industry leaders.
In an industry where the only constant is change, it’s almost impossible for any one individual to keep up to date on all of the changes occurring in cannabis.
Thankfully, the cannabis industry is very fortunate to have a number of excellent journalists whose reporting on cannabis allows each of us to remain informed on all of the changes occurring in the industry.
For today’s edition of Four PM, we had the opportunity to sit down with Matt Lamers who is the International Editor for MJ Business Daily — one of the leading cannabis publications.
Matt Lamers is the International Editor for MJ Business Daily
What was the insight that led to you covering the cannabis industry four years ago?
I had spent most of my adult life outside Canada, but my wife and I were looking for an opportunity to relocate to Canada, mostly because we wanted our kids to go to school here.
An opportunity opened up at MJBizDaily and I was very grateful to join a team of journalists doing important work.
When I started at MJBizDaily in June 2017 I would have been one of the first full-time cannabis business journalists in Canada.
Like most reporters starting a new beat, I didn't know much about this one before I started, but that allowed me to approach it from a completely fresh perspective, which can be beneficial.
What’s surprised you the most in the four years that you've been covering cannabis?
What surprised me the most is how much money it's possible to lose selling cannabis.
Five years ago few people would have predicted that the largest Canadian cannabis businesses would have lost over $13 billion cumulatively in the first two and a half years of legalization. That's pretty wild.
Thousands of people lost their jobs, many of them during a pandemic, which is the real tragedy. MJBizDaily reporting has also highlighted some of the executive compensation packages that have been awarded amidst the billions in losses and thousands of job losses.
Some industry-wide introspection is probably needed in this area.
I wrote a story in December 2017 about how the cannabis industry had bankrolled way more cannabis production than it needed, and the story saw a looming retail shortage as one of the biggest pending issues.
Ultimately, that's exactly what happened.
Large LPs got Canada completely wrong, and they made the same mistakes all over the world — building large cannabis greenhouses minus the regulatory mechanisms to actually sell the production.
The result was billions of wasted dollars on M&A and greenhouse construction in Latin America, Africa, Europe, and elsewhere.
Smarter people than me think that's what happens when you build a business to sell stock, not product. I tend to agree on that point.
How would you evaluate the success of the Canadian cannabis industry so far?
A lot of people look at the amount of money large LPs lost and conclude the industry is a disaster and that legalization is a failure.
But I think that's wrong — I think it's actually going exactly as well, if not better than it was supposed to.
We have rough estimates by Statistics Canada for how much money is being spent in the illicit market, and of course, we know exactly how much has been spent in the legal market.
It's now estimated that more money is being spent legally in the recreational market than is being spent in the underground market, which is great.
It's only been two-and-a-half years since cannabis was legalized, and this is a decades-long process. When we talk about this in 20 years, there's still going to be an underground market. When we talk about this in 40 years, there's still going to be an underground market.
So even though some large businesses have mostly failed to deliver — I still think the industry is doing well overall.
What’s the most interesting change you've observed in the four years you’ve covered the cannabis industry?
Micros are challenging standard LPs a little faster than I expected.
I thought it wasn't going to be until the end of 2021 that micros would give standard LPs a run for their money, but given the results of some of the large LPs, the cutbacks, the asset fire-sales, the layoffs, the executive compensation, maybe we shouldn't be surprised it's already happening.
I don't think micros will command a majority of overall market share, but I do think some of the businesses have a good at succeeding in very specific areas of focus, especially in high premium segments.
Many micros are still getting their businesses ready, however, so the full impact won't be known for another year or two, but I predict micros that manage to keep costs very low while choosing a niche category to excel in will see some success.
The more small businesses that succeed, the faster we're going to get to that point where illegal sales are irrelevant. I don't think most large LPs are capable of getting to that point on their own. I think they've shown us that already.
What trends are you paying closest attention to in the cannabis industry today?
I'm looking at trends in Canada and overseas.
Most large LPs are still spending too much money in proportion to the amount of money that they're earning, or the amount they expect to earn in the near future, and that's what burned large Canadian LPs:
They bought too many big greenhouses.
They tried to bite off more than they could chew.
They tried to be number one in too many different markets, in lieu of actual, addressable demand.
International companies, especially ones in Australia right now, might be building greenhouses that are too big in proportion to the amount of revenue that's accessible to them.
Another trend I'm watching that's been going on for years is the UK not allowing its British Overseas Territories to legalize medical cannabis production for sale locally and overseas, which is disgraceful given that the UK is one of the biggest exporters in the world.
It’s happening in the British Virgin Islands and elsewhere.
Another trend I'm paying close attention to overseas is the real size of the import/export market for unapproved medical marijuana. So many businesses are hitching their wagon to that prospect (exports), and almost all of them will lose in my view, unless something drastic changes in their favour very soon.
The import/export market for unapproved medical marijuana is very small.
The Canadian military reimbursed more medical marijuana in kilograms than Germany imported last year.
That’s not saying Canadian veterans were reimbursed too much, the point is the size of the German market today is minuscule. That will change, but when? No one knows exactly. All of those reports predicting $400 billion markets outside the US are bullshit.
The fact is more countries want to export cannabis than import it. But no one ever talks about that. There are so many countries, like Denmark and others, that have a regulatory system in place that's mostly designed for the mass exportation of medical cannabis.
But export it to where? Canada, the biggest federally regulated market for unapproved medical marijuana in the world, by far, still doesn't allow commercial imports.
Israel, which is 2nd or 3rd biggest, didn't allow commercial imports for most of the past eight months.
The third, Germany, barely grew and is starting its own domestic production as we speak. Australia and New Zealand are so small.
So where are these mystical, magical import markets for unapproved medical marijuana? It's time this industry gets real and faces honest facts.
I'm not saying those large import markets will never exist — I'm saying they're small, they're growing slowly, they're hyper-competitive, and absolutely no one knows when that will change in a material way because the size of the actual, addressable markets is dictated by regulations governing the industry in the respective countries.
You can't export something without a willing importer. Isn't that obvious? Apparently not.
So that's a trend I'm watching, and it's an important one: How fast international import/export markets open up for unapproved medical marijuana.
The answer depends on federal legal reform and regulatory development, which as I said is impossible to predict.
Businesses would be better off focusing on a target market that has addressable customers today.
We also need more research into the benefits of medical cannabis. Among the billions of dollars raised by Canadian LPs, a very very small amount went into medical research.
What has you most excited about the future of the cannabis industry?
That there is an industry, and even though there's going to be some backtracking in certain areas, when it all averages out, we're going to take more steps forward than we will take steps back.
We've seen this in countries like Denmark, where they took some big steps forward and they took some steps back, and we're going to see this elsewhere.
What makes me excited about the future?
Just that there even is a future for the medical marijuana industry and that fewer and fewer people are going to be imprisoned for it.
It’s just absurd that it's 2021 there are still people being arrested and incarcerated and killed for this plant. Every day we make progress.
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