Canada’s trailblazing move to legalize cannabis for recreational use, which sparked an entirely new industry and had wide-ranging implications for nearly every facet of society, has been voted The Canadian Press Business News Story of the Year.
The term “disruption” in business has become so overused that it has become an empty cliche, but it is warranted in the case of pot legalization, said Andrew Meeson, deputy business editor at the Toronto Star.
“It’s hard to think of an area in Canada that hasn’t been shaken up: not just commerce (from criminal act to booming startup to takeover target in the blink of an eye), but also policing, health care, justice, politics. Even culture (just ask Tommy Chong),” he said.
“If that doesn’t make it the business story of the year, I don’t know what would.”
In an annual poll of the country’s newsrooms conducted by The Canadian Press, business editors and reporters across the country chose cannabis legalization in a landslide, with 60 per cent of the votes cast.
The terse negotiations between Canada, U.S. and Mexico towards a new North American Free Trade Agreement was a distant second with 30 per cent of votes.
Canada’s pipeline conundrum, with the Trans Mountain pipeline expansion now in limbo after a court overturned its regulatory approval in August and a U.S. court throwing out the Keystone XL pipeline’s presidential permit in November, came in third out of eight possible candidates with 10 per cent of the vote.
“Pipelines would have won, hands down if it weren’t for the creation of an entirely new industry in Canada,” said David Blair, a business columnist with CBC Radio. “Rarely, if ever, do journalists get to cover the opening of a new market, especially one that is as controversial as cannabis.”
The world was watching when the country made history with the first legal sale of non-medicinal pot just after midnight on Oct. 17 in Newfoundland and Labrador, due to its time zone being 30 minutes ahead of the rest of Canada.
It marked the beginning of what the New York Times dubbed Canada’s “national experiment,” and the culmination of months, if not years, of preparation by legislators and law enforcement officials at all levels and in each province, territory, and municipality.
While Oct. 17 represented an extension from the initial target set for July, and licensed producers ramped up production in the lead-up, long lines of customers were met with widespread product shortages online and in the relatively few bricks-and-mortar stores that were ready on day one.
Still, many Canadians were simply elated to be able to buy government-sanctioned pot after nearly 100 years of prohibition.
“My new dealer is the prime minister!” said Canadian fiddler and pop star Ashley MacIsaac, who in 2001 had been arrested for possession in Saskatchewan.
But cannabis mania had been bubbling for months before legalization, with retail investors rushing to invest in the latest pot company to list its stock. Cannabis company valuations in the lead up to Oct. 17 soared and some of the banks’ online direct investment platforms were bombarded with unprecedented trading volumes.
At one point producer Tilray Inc.’s stock on the Nasdaq exchange in September hit a peak of US$300, giving the Nanaimo, B.C.-company a market value higher than established Canadian conglomerates such as Loblaw Companies Ltd. and Rogers Communications Inc.
Pot will be cited for years to come as many Canadians’ first experiences with investing, said Pete Evans, senior business writer for CBC News.
“Cannabis mania deserves some credit — and maybe blame — for ushering an entire new generation of primarily young people into making their first stock market investments ever,” he said.
A flurry of merger and acquisition activity in the sector, even before legalization, fuelled investor interest as well.
Aurora Cannabis Inc. was on an acquisition spree this year, buying rival CanniMed Therapeutics for $1.1 billion after a terse takeover battle and later MedReleaf for $3.2 billion.
Alcohol giant Constellation Brands in August announced it was upping its investment in pot producer Canopy Growth Corp. — in the largest strategic investment in the pot space to date — to increase its ownership stake to 38 per cent. The Corona beer-producer also received warrants that, if exercised, would up its stake to more than 50 per cent.
And earlier this month, Big Tobacco came calling, as the number of countries that legalized cannabis for medical use continues to grow.
Marlboro maker Altria Group Inc. said it planned to invest $2.4 billion in pot producer Cronos Group Inc. for 45-per-cent ownership, with an option to increase that stake in the future.
The Altria-Cronos deal gave the overall sector a slight lift, but pot stocks have largely come off their highs after legalization as reality set in and concerns mounted about lofty valuations.
Canadian marijuana companies have found themselves in the crosshairs of short-sellers, as well.
Aphria Inc. earlier this month saw its stock value more than cut in half over three days after two short-sellers targeted the Leamington, Ont.-based cannabis producer with a raft of allegations, including that its recent international acquisitions were “largely worthless.” Aphria has called the allegations “inaccurate and misleading” and is confident in the deal in question, but has appointed an independent committee to review their claims.
Meanwhile, recreational pot supply shortages continue to linger. Several cannabis producers in part blamed supply chain issues for contributing to the shortage and have said they are aiming to increase their production, but it will likely take more time fresh product to hit the market.
Quebec’s cannabis corporation stores continue to be closed from Monday to Wednesday as a result. And in Ontario, where the only legal way for residents to buy adult-use pot is through the government-run online portal, the provincial government said it will hand out a limited number of retail licenses due to the shortages.
The Ontario government initially said it would not cap the number of licenses, but now says it will only be able to issue 25 licenses by April via a lottery system. This deals a blow to a slew of companies who have been putting down deposits to secure prime real estate locations in the country’s most populous province in anticipation of obtaining a license.
“Seemingly overnight, activity that always existed on the margins of society has come into the centre,” said Evans.
“It’s been fascinating to watch the growing pains that have ensued… It will be interesting to see in the coming months and years how and if the reality lives up to expectations for the industry.”