Part 2 - The Day After the Expert Panel Review of the Cannabis Act
“If you can’t be with the one you love, love the one you are with” Stephen Stills
In Part 1 of this missive , I critiqued the conclusions from the much-anticipated Expert Panel (EP) review. I consider it a farce that won’t do much to remove the govt boot from the cannabis industry throat. The positive albeit non-binding recommendations will have little immediate impact on each LP who will continue to endure an onerous excise tax (ET) burden not to mention other regulatory headwinds.
Part 2 is about the implications of this ‘Great Disappointment'
I hope I am wrong but there won’t be ET relief in the upcoming April 16 Federal Budget. The pain will continue for at least another year.
Here’s why:
-->Thanks to the experts [sic], the Feds now have a bureaucratic fig leaf to ignore our sector concern, again. Actions matter so it’s hard to argue right now that our leaders care about cannabis and even understand the industry.
--> Regretfully, our large sector does not factor into the current political calculus; addressing LP concerns is not a vote getter.
--> Or maybe Canada’s finances are so broken that govts need every tax dollar they can find.
The EP review is a catalyst for a new, harsher reality check:
1. Most firms will need to get profitable fast, merge with someone or try to get acquired. This is not news, but the urgency is. More tough strategic and financial decisions are in order.
2. It may be time for a graceful industry exit for ‘too far gone’ or precarious businesses. For example, it could be the death knell for medical cannabis clinics if the Feds follow the EP recommendation to allow pharmacies to sell medical cannabis.
3. Conversely, some executives will be rubbing their hands with glee. LPs with decent (a relative term) balance sheets and cash can weather the storm. The accelerating industry shake-out will shrink the number of competitors while providing opportunities to buy quality assets at a deep discount.
4. Furthermore, adroit companies that have turned the cash flow/profit corner and are meaningfully differentiated will survive and even thrive. Some proposed reforms like allowing organic designations will benefit firms like Rubicon Organics.
5. Finally, it is time to stop being so Canadian. More LPs will need to unite, mobilize (I doubt 25% of LPs support the Cannabis Council of Canada) and expend more effort lobbying govts.
What could this look like?
Fledgling industry groups may want to reconsider their priorities and approach. They lost the ET battle, but the war goes on. They might want to shift their focus to alleviating other pernicious government policies such as exorbitant OCS margins or divergent provincial listing, logistics and payment practices.
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