On October 17th, 2018, Canada will become the second country in the world to openly and legally sell recreational cannabis. It is, finally, official — and we don’t know about you, but both my fellow Co-Founder Steve and I are getting ready with gusto! We designed NewKnow to address the real needs of all retailers, and cannabis retailers are no exception.
It seems like the whole country is as excited and ready as we both are — Vancouver has created a Cannabis Store designation for retailers, the 42 labs authorized to study cannabis in Canada are looking forward to a research boom, and New Brunswick is arguably more ready to embrace the cannabis industry than anyone else in the country. Legalization is gaining momentum globally, and the feeling is reflected here at home; our fellow Canadians are eager for recreational cannabis.
If you have any involvement or investment in the cannabis industry, you know it’s a time to be excited — even in the face of what might look like some alarming news.
Canopy Growth, a juggernaut in what already exists of the Canadian cannabis industry, has reported a quarterly loss that’s been bigger than expected. WIthout any other context, this looks worrying: why would a giant be posting losses when it should be in a period of growth?
We know that it is in a period of growth, however. Canopy Growth’s path looks a lot like any promising startup’s looks like — including our own! You need to build before you can sell; when we were developing NewKnow, Steve and I knew we had to buckle down and do the work before we had something we could show off (and boy, did it pay off!). Growing pains are temporary; the resulting growth is lasting.
It is precisely because of this growth that Canopy Growth’s net loss is higher than anticipated; part of getting ready for legalization has meant a 149% surge in operating expenses for the company.
The cannabis suppliers and producers in Canada, prior to legalization, have been serving the medical market. We know that demand pales in comparison to the projected recreational market. This means that even already established players are needing to make big moves to boost production, and without the consumers legally in place until October, the expenses aren’t being made up — yet.
Despite how it looks at first glance, Canopy Growth isn’t worried about the situation, and we think they’re right. They’re confident that they will be profitable by the end of the calendar year, when sales will have started.
Again, when we plot our own growth, we both agree that they have a right to be confident. In fact, I’d venture that it is because of this that they have a right to be confident! If we delayed putting our all into NewKnow until the clients came to us, it would have never launched.
By examining other areas where recreational cannabis has been legalized, we can see even more that they’re right not to be worried. Colorado legalized recreational cannabis in 2014, and by December of that year, monthly sales were topping 35 million dollars — but before that, cannabis prices varied widely, and it took about a year for the market to stabilize.
Transition periods are both electrifying and frightening. Rather than looking at any current rockiness with wariness, players in the cannabis industry should be focusing on the potential of the market, especially in a year or so after legalization goes into effect.
One province that we both think understands the potential of the market? New Brunswick.
While other companies and provinces are only starting to ramp up their efforts now — a collective effort that’s going to see operating expenses temporarily increase across the board — New Brunswick already has 11 stores ready to go.
Four licensed producers have already set up shop and are hiring locals, and the province’s efforts to hire their own workers for their Cannabis NB stores will be underway soon. Four weeks, apparently, is all they need to get a network of stores up and running — an impressively short amount of time!
From everything we know about the way legalization in other, smaller markets has been working, we know New Brunswick is doing the right thing — by being ready as soon as possible, they’ll be profitable as soon as possible.
(Employee training, by the way, is a huge part of that! Educated employees will make or break this new industry.)
Canopy Growth is getting ready, as they should be; because they’re such a giant player in the space, every bump and spike along the way is closely scrutinized. As other companies prepare for legalization come October, more cannabis businesses will have trajectories that look like theirs than less — and that’s both healthy and temporary.
Temporary net losses don’t detract from the fact that we are currently in a very exciting time. Canopy Growth plans to open 18 stores for October 17th, and they’re doing the work now to ensure they’ll be ready. Steve and I both applaud them!
As more businesses ramp up their legalization readiness plans, we’re going to see a few months of tightened margins — but it’s important to keep in mind that this is just the first investment stage. The most exciting era of the cannabis industry in Canada has yet to be seen.
Companies looking to get ready for legalization cannot overlook the power of comprehensive employee training, especially in an industry as heavily regulated as the cannabis industry. Opening all these stores will require hiring and training large groups of frontline staff to ensure they’re ready to hit the sales floor running.
Contact NewKnow to learn how we can help in advance!