Canadian Cannabis Companies Worry About Future U.S. Competition

cannabis industry

As the cannabis industry enters the second month of post-legalization in Canada, we’ve seen a glut of mergers and acquisitions as market leader strive to cement their positions as front runners in the industry.

However, one looming question on the horizon is whether or not U.S. or Canadian companies will edge out in the race for supremacy in the market.

According to the Public Cannabis Company Revenue Tracker – a third-party list that tracks the revenue of top producing cannabis companies – Canadian companies still dominate the chart as of the end of November 2018. Among Canadian dollar reporting firms, Canadians understandable dominate the list, with giants such as Aurora Cannabis (TSE: ACB), Canopy Growth (TSE: WEED), Aphria (TSE: APHA), and more leading the way.

As for firms that report in U.S. dollars, Curaleaf (CSNX: CURA), Trulieve (CSNX: TRUL), and MedMen Enterprises have seen 289%, 739%, and 1088% year-over-year growth rates with quarterly sales in the 20-30 million range. While Curaleaf and Trulieve are Canadian-based, MedMen is headquartered in California.

Although Canadian firms have had a head start over their southern competitors, the Canadian market is much smaller in comparison, with some states such as California and Florida being equally large as the northern country itself. While Canadian companies have still seen exceptional results, it’s worth noting that the company with the largest year-over-year growth, MedMen, is based out of the United States. As more U.S. based firms enter the Canadian marketplace, some experts speculate that we could see  growth rates that could potentially usurp domestic competitors.

We’re going to have a great cannabis industry here, but the people who, for whatever foolish reason, thought that Canada was going to dominate the world of cannabis, they need to disabuse themselves of that notion because it was never founded on any reality,” said president of Origin House Afzal Hasan. “We’re not as aggressive and competitive and capitalistic as the folks down south of the border.”

One big worry for Canadian cannabis producers is that they might end up becoming little more than glorified farmers, supplying a low-margin commodity that will be rebranded and sold under more recognized American brands that end up keeping the higher profit margins for themselves. Canadian legislation makes it difficult for companies to market and brand their products, further exacerbating the issue of how companies will connect to their consumers.

If you look at Corn Flakes, you don’t know where the corn comes from, you don’t know the name of the farmer,” said Rob Cheny, CEO of C21 Investments, a U.S. oriented cannabis firm. Currently, federal prohibition on marijuana has kept large, institutional investors away from the market, but as states continue to ease restrictions, the resulting influx of investor capital could see many firms opt out of listing on Canadian exchanges, which are smaller by comparison.

Back in April, when U.S. Senator Cory Gardner stated that President Trump had no intention of targeting cannabis businesses operating legally in pro-marijuana states, the market saw a surge in hedge fund investment. Such influxes are minor in comparison to what could happen if the U.S. sees a federal legalization of cannabis, however far in the future that might be.

Regardless, while U.S. stocks are still much less liquid, many Canadian companies worry that, despite their head start, they will simply get outpaced as their southern competitors overtake them in due time.