As the troubles stack-up for the main cannabis companies in Canada, an industry insider believes they’ll never be able to address one key issue – a lack of ‘good quality weed’.
James A. Smith, Chief Revenue Officer in Canada at emerging cannabis 4C Labs, says: “I do not know anyone who buys their cannabis on the legal market, it’s horrible quality.”
Recent figures show the ‘black’ and ‘grey’ markets continue to cater for the needs of the majority of Canada’s cannabis consumer users, with many leading companies blaming this on a lack of retail outlets. While acknowledging this has some merit, Mr Smith believes it is being used as a smokescreen for a litany of inadequacies.
End Of The Line
In fact, he goes on to say that today’s leading industry players – exclusively Canadian – will not be around in a few years time. As an executive briefed with sourcing investor capital for 4C Labs, Mr Smith naturally talks up the insurgency but, in a long chat with CBD Testers he raised a host of salient points.
“The big producers paid too much for assets that are not producing quality product. Their whole systems of production cannot produce a quality cannabis product and as consumers in Canada are becoming much more sophisticated, they are increasingly aware of that.”
He says that even though the ‘likes of Canopy and Tilray’ in Canada have been in existence for some time they have never produced a quality cannabis product ‘in the history of their production’. “So if Canopy cannot grow good quality medical products over the last 10 years why would you think they could grow good recreational cannabis?” He ponders
Economies Of Scale
He went on to say there are some key structural issues with these businesses in the type of growing equipment, where they are growing and seed genetic quality, they’re ‘too focused on economies of scale’. The reality of is that they ‘may well never be profitable’ and the real future opportunities are for ‘the smaller craft companies such as Supreme and The Green Organic Dutchman’.
“While there will be successful companies, the reality is that the craft growers have not yet entered the market. The reality is that there products is not in demand because of the quality and they are blaming distribution (a lack of stores) for all of their woes. Investors assumed that companies who had been in the medical game were going to dominate the recreational market and that just simply hasn’t been the case. I don’t know anybody who buys weed from a Government store. The quality is terrible.”
Mr Smith has been planning his entrance into the cannabis market for four years and has been actively involved for the last 18 months. In that time he has assembled ‘a formidable team of growers’ with an extensive genetic library, and established key strategic partnerships with large Colombian agricultural and pharmaceutical firms as well as distribution partners in Malta, Germany and the U.K.
It will garner is first harvest in Colombia next September and will target its oil at large corporates in the cosmetics and wellness markets as well as developing its own CBD wellness range.
U.K. Pot ‘Horrible’
Mr Smith previously worked in commercial and residential real estate.He said one of his real estate roles was to identify jurisdictions were ‘people weren’t paying attention and there were regulatory gaps, and that in this regard the two industries pretty much identical.
One of the jurisdictions where he sees great potential is in the U.K. medical cannabis market and it’s in the process of establishing a growing base on the Channel Island of Guernsey to supply this market.
Although U.K. medical cannabis has been available for over a year, the system is badly designed and restricts access to those with deep-pockets, through private clinics.
“Recent research show that there are 1.4m people in the U.K, using street cannabis for their medical conditions – that’s a lot of cannabis. We are yet to see how this will develop but what is currently available costs around £35 a gram, and £375 a gram for CBD oil (Epidyolex) and these come could down £10 and £40 to £50 and and we would be profitable. The cannabis in the U.K is horrible, it’s of seriously poor quality and my growers have been supplying cannabis clubs for over 25 years; that’s the kind of knowledge you need to be successful.”
4C Labs has begun a new capital fund-raising round in London, with Mr Smith saying the potential arrival of two new board members would allow it to raise millions of pounds in short measure and circumvent the need to build out its facilities in phases.
Mr Smith sees London emerging as the global financial cannabis capital. “I can feel the temperature in London, and it’s exciting this could be a £50 Billion industry in the next five years five years.”
As things stand in Canada the appetite for risk capital has disappeared, says Mr Smith.
“A lot of mature companies are running out of capital, they are not profitable and, if they don’t have enough cash in the kitty and they missed the last hurrah of access to capital, then they are in trouble.” He said, “They have a lot of overheads, have built large facilities with lots of staff. A lot of Canadian companies have paid over the odds in terms of the assets they have purchased over the last five years.”
Then he went on to identify a number of deals which he described as being ‘highly dubious’ in terms of value to the Canadian majors in jurisdictions such as Jamaica, Argentina and Chile.
He continued: “They are not succeeding at what they are tying to do, whether that’s due to incompetence? But many of these assets are costing more than they are producing. We’re at the very beginning of this industry and the real players are yet to emerge, that will happen within the next five years.”
“That’s my opinion, and a lot of people will disagree with me.”
Just last week Aurora Cannabis CEO Terry Booth warned that the Canadian cannabis industry will soon see ‘carnage’ among some companies that have high production and others will struggle to survive in the current downturn.
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