‘It’s Easier to Sell a Dream Than Reality’: Inside Canada’s Cannabis Crash

‘It’s Easier to Sell a Dream Than Reality’: Inside Canada’s Cannabis Crash

Jennifer Danyluk moved from small town New Brunswick to Edmonton in 2007, joining nearly 19,000 Maritimers who’d been beckoned by the booming oil economy. Back then, there was demand for literally everyone—pipe fitters, homebuilders, store clerks. For a young and ambitious accountant like Danyluk, Alberta was the land of opportunity.

The only home Danyluk, her then husband and their two young children could find to rent was shared with another family who had also moved over from across the country. “We knew it was going to be worth it,” she says.

Danyluk landed a job at an accounting firm. Soon, her parents relocated to Edmonton too, and she started progressing in her career, moving to companies in the energy sector. She divorced and remarried, and in 2016, she took on a new, well-paying role as a controller for an energy company. That same year, Alberta’s economy crashed under the weight of an oil-supply glut. Suddenly, Danyluk found herself struggling with a 30 per cent wage cut.

The timing couldn’t have been worse. Danyluk’s blended family had just moved into a new acreage property and added a Mercedes to their three-car garage. When her husband, a procurement manager in oil and gas, lost his job, it fell on Danyluk to make the payments and uphold the standard of living they were accustomed to.

She took up a second job in public accounting while her husband waited by the phone for job opportunities that never came. Their contrasting circumstances bred resentment in the marriage. Danyluk fought exhaustion to get through days that often started at 5 a.m. and ended after 10 p.m. “I felt like I was living in the dark,” she says.

She decided to look at other options, and she didn’t have to wait long. A headhunter called her in the summer of 2017 with an invitation to interview for one of thousands of new jobs in the nascent cannabis industry.

At this point, Danyluk had zero user experience—like, she’d never even inhaled it at a high school house party. She joined Radient Technologies, a plant-extraction company that was converting its entire operations to processing cannabis into THC oil. The company had a market cap of $93.4 million at the time, before it even had a licence to produce cannabis, let alone a provable product. Danyluk became its controller.

Founded in 2001, Edmonton-based Radient showed early promise in pharmaceutical cancer treatment, but its successes were cut short by a failed medical trial that was halted after adverse outcomes for patients. It ended up as a boutique producer of natural health and cosmetic oils with two major assets: proprietary microwave extraction technology and an underused 1,850-square-metre processing plant.

Like dozens of would-be recreational producers, Radient underwent its transformation on the heels of Bill C-45, the Cannabis Act. Companies that rushed into the space—some with billion-dollar valuations—went on a hiring spree even before there were clear parameters around manufacturing, retailing, exporting and taxation of cannabis products. More than 2,600 Canadians were hired into a variety of jobs in the industry to ramp up for Legalization Day in 2018. Farmers switched from harvesting hothouse peppers to jolly green herbs. Pharmacologists pivoted from natural oils to high-concentrate vape juices. Tech bros beat their chests about that ol’ sticky icky.

Entrepreneurial in spirit and full of farmland, Alberta became an important hub for the industry. Among the province’s would-be growers stood Aurora Cannabis, a modest medical company that stole the investor spotlight with its vision for a 75,000-square-metre greenhouse. If completed, Aurora Sky would become the world’s biggest marijuana facility. By the time C-45 went from the Lower House to the Senate, Aurora had a nearly $2-billion market cap. Flush with capital, it wasted no time breaking ground on Aurora Sky and making plans for other greenhouse operations: Aurora Air, Aurora Polaris, Aurora Sun and a Danish expansion, Aurora Nordic.

Led by co-founder Terry Booth, an Edmonton electrician-turned-entrepreneur, Aurora wanted to be more than just the planet’s top pot producer—it aspired to become the PepsiCo of cannabis. Aurora would go on an aggressive buying spree, acquiring businesses from every corner of the industry, including greenhouse builders, at-home grow-box manufacturers and even a liquor-store chain it planned to convert into a dispensary franchise. Along the way, the company began talking about a deal with Radient Technologies—Jennifer Danyluk’s new employer—in the hope that Radient could apply its technology to cannabis.

“It was exhilarating to watch everything grow”

When Danyluk came on board at Radient in the summer of 2017, there were fewer than a dozen people on salary, she recalls, including Denis Taschuk, who’d been the president and CEO since 2010. “I walked into a blank slate,” she says. “Nobody for accounts payable, accounts receivable, nobody for payroll, nobody for procurement, there was nobody for inventory. There was nothing.”

That fall, Aurora made a $14-million investment in the company, financed through convertible debentures, private placements and warrant exercises—a five-year agreement for Radient to process biomass into cannabinoid extract at a premium fee. Aurora also took a major stake in Radient and put Terry Booth on its board. Within a month of announcing the deal, Radient’s market cap more than doubled to $228 million, even though it had yet to obtain its licence to process cannabis from Health Canada. (Booth declined my request for an interview and multiple emails to Radient’s communications department went unanswered.)

Danyluk set about forming the financial and HR team, hiring as many as 40 people in one month. Soon, the company needed a second office space. After one year, Danyluk was promoted to vice-president of finance. “It was exhilarating to watch everything grow,” she says. “I realized I could jump into any industry and do my job. All I have to do is learn the business.”

For that, she’d have to wait until October 17, 2018—Legalization Day. Danyluk walked into a cannabis store for the very first time with a sense of pride for being part of a leading-edge industry as well as some residual unease from a lifetime of abstinence. She wanted to try the product for herself—first a drop of THC oil, then gradually dabbling in flower, vapes and edibles. Before long, she was making her own “cannabutter” from three house plants she was growing legally on her parents’ property. She had convinced her mother that cannabis would treat her insomnia.

At work, she was surrounded by ex-energy-sector professionals. The office joke was that they’d moved from bitumen oil to another kind of oil. The joke was all too true but it would become less funny with time as another oversupply problem became impossible to ignore.

Within three years, the cannabis bubble would burst, blowing up shares in pot companies and billions of dollars in revenue projections. Canadian cannabis companies would face securities-fraud accusations, with the Radient-Aurora partnership central to a class-action lawsuit that went public last fall. All told, a third of the industry’s 20,000 jobs would vanish between 2019 and the end of 2021. And though Danyluk would leave the industry on her own terms, it was only after finding herself in a much darker place than where she’d started.

Recreational cannabis should have been an economic slam dunk. Canada was already one of the world’s top producers, not just in output but in quality too; the infrastructure and knowledge capital already existed. The federal government just needed to bring it out of the shadows of a $5-billion illicit market.

But curbing the illegal market quickly proved difficult as Health Canada rolled out its regulatory frameworks. In order to apply to become a licensed producer, or LP, companies had to practically complete construction of their facilities and then wait up to a year for approval. The average illegal grower wasn’t about to take on the start-up and labour costs, let alone fill out a tax return or a licence application that could run 1,000 pages.

Off the bat, legal weed was exclusively accessible to entrepreneurs with deep connections in the financial sector: venture capitalists and stock promoters. “They weren’t selling cannabis—they were always just selling equity,” says a former senior Aurora employee, one of several former staff and contractors who spoke to me on the condition of anonymity.

The industry bifurcated into competing markets: The illegal one continued to fly under the radar, paying no taxes and little in the way of overhead; the legal one ballooned beyond a rational size on the back of Bay Street. Canada was only the second country to federally legalize weed, after Uruguay—but the untested nature of a new industry didn’t matter to wealthy investors. Nor did it matter that the federal government prohibited recreational-cannabis exports.

Everyone wanted in on Canadian weed, and the bigger the production capacity, the bigger the investment. Constellation Brands, makers of Corona beer, bet US$4 billion on Canopy Growth, an LP based in Smith Falls, Ont. Altria, the parent company of cigarette maker Philip Morris, paid US$1.8 billion for a 45 per cent stake in Toronto’s Cronos Group, a vertically integrated cannabinoid research, production and distribution company. Big Pharma funds took the West Coast start-up Tilray from Nanaimo to the NASDAQ, where its initial share price of $17 skyrocketed past $200 within four months, drawing comparisons both to monster successes (Amazon) and bloated flops (Pets.com). “The money was just flying in the door,” says Danyluk.

In hindsight, it’s difficult to understand how these valuations were formed. Deloitte projected a retail market value for legal recreational Canadian cannabis of $5 billion. But that couldn’t possibly bear out when comparable, mature markets in the United States were yet to reach that bar themselves. “In the capital markets, it’s easier to sell a dream than it is to sell reality,” says independent analyst Scott Willis. “You get a higher valuation for your company if you just promise things that haven’t happened yet—because nobody can fact-check you.”

An illustration of a smiling face frowning depicting the cannabis crash

Willis was one of the rare cautious and pragmatic, if not pessimistic, voices during the lead-up to legalization. He left TD Asset Management in January 2018 to start Grizzle, a financial-news and research company focused on new money—emerging industries like tech, cannabis and now meme stocks. His first major report, “Up in Smoke: The Overvalued Haze of Marijuana Stocks,” was virtually ignored despite raising red flags. It compared Canada’s marijuana sector to the rare-earth-commodities bubble of 2010. “Share prices were assuming that cannabis was going to stay very expensive and very lucrative, and we knew that wasn’t the case,” says Willis. Looking at precedents for price deflation in older recreational markets like Colorado, his report predicted that oversupply would cut retail and wholesale prices in half by the end of year one.

The report also addressed the biggest buzzkill that few stakeholders—from executives to farmers to public servants—seemed keen to discuss seriously: the illegal market. Realistically, it was always going to take decades to turn illicit operators into tax-paying legal entities. But it was impossible for this to make it through the capital-markets echo chamber that rewarded companies that made ambitious promises while hoping the fundamentals would eventually catch up.

Aurora was a classic example of selling the dream, which it perhaps did most to employees (who put some of their paycheques into stock-purchase plans) and members of the extended family, like Radient (whose future success could be rewarded with an acquisition). The company even hosted an “Aurora World Tour” in 2018, flying every staffer from around the world to Edmonton for what one former employee called “the mother of all staff meetings and pep rallies.” But behind the celebratory mood, there were reasons to panic.

“The money was just flying in the door”

Terry Booth co-founded Aurora in 2006 with investments as well as $2.5 million of his own money—made from a successful electrician consultancy. Despite his wealth, the former tradesman remained a man of the people, attending meetings in blue jeans and sleeves rolled up to his elbows. Tenacious, good-humoured and occasionally salty-tongued, Booth was well liked among Aurora’s young and enthusiastic team. “But as far as him being the CEO of a multi-billion-dollar company, you really got the feeling that was thrust upon him,” says the former employee.

The board of directors’ strategy was to surround Booth with polished businessmen, starting with COO Allan Cleiren, who was brought over from Universal Rail Systems, and executive vice-president (later chief corporate officer) Cam Battley, who left a health company he’d founded in the late 1990s. Cleiren and Battley stood out as oldschool suits amid the crowd of “mavericks” and new recruits, but Battley seemed especially positioned to clean up after Booth. “Terry—God love him—he’s an Alberta guy. He’s rough,” says the source. “I got the impression that a lot of their relationship was: Terry would say something and then Cam would be running behind and going. ‘No, what Terry actually meant was this….’”

A more difficult problem to clean up was Aurora over-promising and under-delivering on Aurora Sky, the facility whose announcement turned the company into a hot stock in 2016. A source told me that six months before legalization, it was still largely “a pile of mud with some girders sticking out of the ground,” save for one completed growroom out of a planned 15. And that one was far from functional. “The big value proposition was that you could go from the seedling to the finished plant without a human hand ever touching it, because everything was moved by overhead cranes—all of your spinning was done by treadmill belts,” says the source. “But none of it worked.”

Aurora continued to update investors with cost and schedule overruns. A veteran grower who was recruited from the illegal market to work at Aurora struggled to produce quality yields in the space he had. It’s one thing to have 200 plants in a basement grow-op; managing 50,000 or 100,000 plants simultaneously with state-of-the-art technology is an entirely different skill set. Scaling up is a common problem in cannabis.

“To be truly good quality, cannabis has to have caring attention on many different variables all the way through its life cycle,” says long-time cannabis researcher and plant cultivator Ryan Lee. “You can no longer manage the quality if you’re just turning over crops.”

Health Canada regulations also require LPs to produce pharmaceutical-grade weed, which is infamously dry and joyless—“schwag” in common parlance. The result for retailers and consumers is lower-quality and lower-potency products than what you’d see on the illegal market sold at a higher price to make up for the cost of tamper-proof packaging and government taxes. What’s more, Health Canada regulates cannabis advertising as strictly as tobacco-product marketing, essentially limiting ads to age-gated venues, including bar bathrooms and websites with adult content.

Chris Bolivar, a former Edmonton adman who now leads branding for the chain dispensary Fire & Flower, admits it has been difficult competing with the illicit market—especially at the start, when Aurora and Canopy Growth controlled the lion’s share of shelf space. “It was very expensive at the outset,” he says. “What customers were getting on the illegal market was probably better product.” One LP, Winnipeg’s Bonify, was shut down after Health Canada learned it had been buying illegal products to sell as its own.

To Aurora’s credit, the company managed to consistently make products with more than 20 per cent THC, a legally allowable potency comparable to that of illicit products. In an industry that’s prohibited from using creative advertising, having higher THC percentages than competitors helped Aurora gain nearly a fifth of the market share in the first quarter of 2020, the most of any LP. But Aurora lost its edge as competitors improved their yields. By the start of this year, Aurora had only three percent of the share of the market. “They stayed where they were,” says a former senior employee. “The rest of the competition grew around them and past them.”

The same source says there’s no doubt that the Canadian legal market has the best-quality cannabis in the world. “It’s remarkable, especially when you compare it to any other nation’s. But there’s just so much of it.”

What puzzles experts is why growers attempted to flood the market in the first place. Cannabis production had already exceeded demand before legalization, evidenced in routine and robust seizures of Canadian weed crossing the southern border. But after legalization, the forecast combined output by Canada’s top nine cannabis producers amounted to more than triple Health Canada’s projected market demand of 926,000 kilograms per year. Aurora alone claimed it would grow a third of the yields. Despite obvious signs of a supply glut, the company kept announcing more greenhouses—bigger greenhouses—amid a globe-trotting buying binge led by Terry Booth.

Analysts and even staff could not get their heads around many of the acquisitions, which often felt random or redundant. For instance, Aurora bought a major stake in Hempco, an Alberta hemp producer still in the research and development phase, then acquired Agropro, Europe’s largest organic hemp producer. Another source with intimate knowledge of Aurora’s portfolio sees a logic in these decisions—just not the speed at which they were made. Sources told me that company investors urged Booth to buy everything he could to become a true multinational corporation. In the earliest days, so much about the industry was uncertain: What would future regulations look like? Aurora tried to stay ahead of the game by investing in prospects (Hempco), outright buying companies that had brought a product to market (Agropro) and taking new technologies such as robotics (the greenhouse builder Alps) out of the competition’s hands. Regardless of the value propositions, says the source, Aurora became stretched too thin across these multiple ventures to lead them all successfully.

The Radient-Aurora partnership made sense on paper, largely due to the projected size and scale of Radient’s operations. Cannabis oils, extracts and edibles were relatively novel products, but altogether, they’d already gained a third to half of the market share in jurisdictions in the U.S. where cannabis was legal. For Aurora, teaming up with a company like Radient, which had proprietary microwave technology to bulk-process five metric tonnes of biomass daily, was a no-brainer.

Radient was poised to produce the cheapest and largest quantities of THC and CBD distillates in the country. But as Legalization Day approached, it still couldn’t get bulk THC extractions to work as planned. Worse yet, the company only had an R&D licence; it was still trying to get permission to process. “There were many hoops to jump through,” says Jennifer Danyluk. “The government had massive, strict rules on how to store cannabis and where to store it, right down to the security system that had to be in place.”

What’s more, Radient had divested itself of supplements and vitamin oils—its only profitable revenue stream—due to regulations in place to prevent cross-contamination. Rather than build a separate facility for cannabis, Radient converted its entire production line to mass-producing cannabinoid extracts. As a result of time sunk into construction and without products to sell, Radient had two quarters without revenue, from September 2018 through to February 2019.

“In the capital markets, it’s easier to sell a dream than it is to sell reality”

In the meantime, Aurora began doing its own in-house extractions using two CO2 extraction rigs at various plants, which the product-development team preferred over the discoloured and pungent samples from Radient. Worse still, Radient’s oil was weak. Its first shipment had only three per cent THC potency. You couldn’t really get high off of that. Early sales figures showed that consumers weren’t interested.

Whether the decision to mass-produce unsellable THC oil was Radient’s or Aurora’s—or whether it was a decision at all—depends on whom you ask. A high-ranking source says that both companies came to this conclusion based on their own market analyses. But others can’t see how Aurora could possibly have done so, knowing the consumer market as well as it did. They think it’s more likely that Radient’s scientist-led team, who had no prior cannabis experience, could not figure out how to produce a high-potency extract with their own technology.

Aurora not only struggled to find a meaningful use for Radient’s oil but also had little need for it. A Radient staffer tells me they would call Aurora, saying , “It’s ready for you to come pick up,” and then there’d be no response. A former Aurora employee adds that their company overestimated the market for extracts as badly as it did the market for dried flower.

An illustration of a smiling face frowning in a dark sky

Of course, the company wasn’t alone. And while the abysmal sales revealed in its first post-legalization earnings call were largely forgiven by investors, the second earnings report in spring 2019 sent them running, taking Canadian pot stocks down with them. The country’s largest growers, Canopy Growth and Aurora, posted EBITDA losses of $75.1 million and $36.6 million, respectively, and would see their stock values drop by one-third by the summer of 2019. The crash was felt more by smaller public companies like Radient, which lost 70 cents of their share price of $1.88 in six months.

“The company wasn’t performing and generating cash flows and revenues, like it announced or promised,” says Danyluk. But insiders held strong that the company would rebound. Danyluk was a participant in the company share-buying plan. She continued investing 10 per cent of her paycheques into the company; Radient matched her contributions. “Becoming an owner puts more skin in the game, so you work even harder,” she says.

Last September, Aurora Cannabis Inc. and several former and current executives were served with a class-action securities-fraud lawsuit filed in U.S. District Court in New Jersey. According to the allegations brought forward in the suit, it was around the middle of 2019 that Radient made an unusual purchase of US$21.7 million of dried cannabis from Aurora. This was not something Radient had carried in stock before, nor would Radient need to fulfill its master service agreement with Aurora to process shipments of biomass for a contractor’s fee.

Stranger still, according to the former investors who are plaintiffs in the lawsuit, Radient—a company that was never in the business of selling cannabis—sold approximately US$18.1 million of biomass back to Aurora over the next nine months. The suit alleges this is a “round-trip” transaction, when one company sells assets to another to falsely inflate revenues and later buys back the assets.

According to an investigation by industry research group TheCannalysts, the transaction was likely a last-ditch effort orchestrated by the bigger company, Aurora, to fluff up its financials with bulk sales to a company it had significant influence over. For all intents and purposes, the investigation suggests, Radient existed to process the inventory of a single vendor, which also happened to own 14 per cent of the company. That single vendor, Aurora, had an executive on Radient’s board in Terry Booth. Aurora’s reports for the same quarter included US$20.1 million in sales of wholesale bulk cannabis as one of its few bright spots. Panicked and desperate to recover lost stock value, Aurora executives allegedly used Radient to get its stock price back up, according to TheCannalysts report.

Danyluk doesn’t deny that Aurora executives had a lot of sway over Radient. “They were our only customer at one point,” she says. “So how much influence does that give? Quite a bit.” But her understanding of the transaction is different. The master service agreement, she says, had proven nonviable for Radient. “Aurora was getting a smoking deal.” The companies began to do business outside of the agreement, which saw Radient purchase bulk cannabis from Aurora, process it and then sell it as finished product to Aurora and other clients it hoped to gain for survivability.

The class-action lawsuit against Aurora alleges that the company used a fraudulent scheme to inflate its fourth-quarter results in 2019, including the sale of the US$21.7 million of dried cannabis to Radient. Confidential witnesses in the class-action suit say the purchase made little sense. Radient was still in the testing phase of its extraction technology; it wasn’t even capable of processing cannabis at that quantity.

“Becoming an owner puts more skin in the game, so you work even harder”

What’s more, the steadily decreasing price of biomass suggested that, at best, Radient had recklessly overpaid for the inventory when it couldn’t even pay its overhead bills, such as forklift-rental charges. At worst, it was a sham sale, a theory supported by confidential witnesses in the class-action lawsuit who claim that the biomass never even left Radient’s vault. According to the filing in the suit, “the material was simply warehoused until it was subsequently returned to Aurora.”

A U.S. federal judge has yet to certify the class action, but the core question is whether the transaction had any “commercial substance.” The plaintiffs point to the fact that Radient, which had generated a mere $61,000 in its best quarter as a cannabis producer, still struggled to pay its bills after bringing in US$18.1 million in cannabis sales as proof that money never changed hands—that the transaction was only put on the books to mislead investors.

In an email from his public-relations agency, Terry Booth refuted the claims of the class-action suit and pointed to a motion to dismiss the lawsuit, which has been filed on several grounds. Aurora’s legal team says that the lawsuit is generally deficient, its allegations are based solely on hindsight and it should be struck out. The motion contends, among other things, that the claims related to Radient are purely speculative, the plaintiffs fail to allege facts that support any evidence of a round-trip transaction and there is nothing unusual about a sell-and-hold transaction—in this case, where the product sold to Radient (biomass) was different from the product purchased from Radient (extract).

Radient, which is not a defendant in the suit, did not respond to my requests for comment. According to corporate documents from 2020, “Aurora ceased to have significant influence over the Company [Radient] as a result of no longer having a director on the Company board and their ownership dropping below 10 per cent of the Company and therefore were no longer considered a related party to the Company.”

Jennifer Danyluk remembers the day in October 2019 when her colleagues went into a panic. She’d run through a few cost projections again and again and concluded that Radient would be cashless, probably within a year. The whole thing echoed the Alberta energy crash she’d only recently pulled through. In fact, it was worse: She watched Radient’s share price plummet from a high of about $2 a share down to a penny stock. At the very peak, she had approximately $100,000 in holdings of shares in Radient, Aurora and other cannabis companies. In the end, she’d lose all her gains and about 75 per cent of her original investment.

While it stung to lose her stock-market earnings, she barely had time to think about it with all the other stresses she faced when the pandemic hit. After delaying downsizing for longer than necessary, Radient temporarily laid off a chunk of its workforce. With the company’s staff down to a few dozen people, Danyluk worked the equivalent of seven jobs—in bookkeeping, procurement and even IT. “When you put so much of yourself into something, you don’t want it to fail,” she says. She went three months without pay and found herself living in the dark again—turning on her laptop at 4 a.m. to start days that were longer than any she’d experienced before. “I didn’t really spend much time with my family, I didn’t see my friends anymore,” says Danyluk. “I was never home. And then I landed in the hospital.”

Danyluk was hospitalized for 10 days in October 2020 due to a bacterial infection that her exhausted immune system couldn’t fend off. All her life, she had been a clean eater and a fitness enthusiast. But work stress had cost Danyluk everything, even her health. She was done. Before she recovered, she interviewed for a new job in the trucking sector. She hid the IV bag under her sleeve.

The pandemic led to a 25 per cent spike in legal cannabis sales—even bigger than the jump in alcohol sales—but meaningful growth in the industry as a whole has been negligible, revealing just how badly the industry overestimated Canadians’ appetite for weed, even at bargain prices.

Just as Grizzle had prophesied in its bleak 2018 report, product oversupply led to price drops of more than 50 per cent. An “eighth” (3.5-gram) jar of mid-market weed now sells for around $25, compared to $55 on Legalization Day.

To compete, illicit growers have also slashed their prices by about 30 per cent. But they can afford price compression, unlike the 836 licensed producers across the country today, who put about 30 per cent of their top lines toward federal and provincial taxes. “I have a few illicit-market providers in my network,” says Dan Sutton, founder and CEO of Tantalus Labs, a licensed producer of small-batch cannabis based out of B.C. “They’re laughing at us. They’re licking their chops.”

Of particular concern is the excise tax, which takes $1 per gram of the wholesale price of flower, regardless of the cost of production or the product’s retail price. In 2018, the wholesale price of cannabis was about $8 per gram; that price has now compressed to about $4.65 per gram. In other words, a 10 per cent tax has become a 20 per cent tax.

That may still be viable for companies like Aurora, but not for smaller growers like Tantalus, which rarely produces cannabis for less than $1.50 per gram. “The large companies know that there’s a medium-term vision to starve [craft producers] out,” says Sutton. “And all they need to do is continue to sell product at a gross margin loss and wait for their competitors to die. And that is happening.”

Even while small growers are picking up more market share than ever before, they simply don’t have the volume to improve their margins. Sutton, who founded the tax-reform-advocacy group Stand for Craft last fall, says the only thing keeping craft companies alive is unofficial tax vacations. Sutton calls it “flexibility” granted by the Canada Revenue Agency. “I believe that there’s a substantial majority of small to medium enterprise cannabis businesses that have either taken excise tax vacations to be able to create survivability for at least the short term or have just stopped paying their excise tax entirely,” he says.

Companies big and small are selling off farms, warehouses and unused infrastructure for cents on the dollar on industry exchange sites. Even whole companies themselves are up for sale as turnkey operations. As of this writing, 34 licensed businesses—cultivators, processors, retailers and lab testers—are listed on the website for Toronto’s Hyde Advisory & Investments, which began as a security and compliance consultancy but has evolved to include a cannabis-business brokerage.

Since Legalization Day, the Canadian Cannabis LP Index managed by New Cannabis Ventures has lost 88 per cent of its value. Roughly one third of the cannabis workforce has been wiped out since April 2020. And few companies are profitable. How did prognosticators get it all so wrong?

Many cannabis professionals, even those embittered by widespread financial malfeasance, blame the government for the industry’s inability to rebound. They routinely cite over-regulation of the legal market—high taxes and production, packaging and advertising restrictions—and under-regulation of the illicit market, which stills supplies 35 per cent of the pot consumed in Canada.

“The industry has done a great job of trying to provide health and safety and prevent youth access,” says Jeannette VanderMarel, who led several Canadian LPs over the past decade, including Green Organic Dutchman, one of the more popular brands. “But we certainly need more support from regulators to limit the illicit market.”

“The promises made upfront were too large and unrealistic”

The counter argument is that you can’t pin the travails of the cannabis market just on over-regulation or a failure to curb the illegal market. To put it simply, the main problem hanging over the industry is that the biggest and most influential LPs were overly aggressive in predicting market size and their share. “It was too much capital applied too fast in a premature race to become the biggest and meanest,” says Nawan Butt, a portfolio manager at Purpose Investments. “The promises made upfront were too large and unrealistic.”

He adds that the industry is only now finally stabilizing and “trudging toward an equilibrium” far lower than promised in 2018 by industry leaders, most of whom have left their founding companies. A report by digital-media company The Deep Dive estimates that there’s been an 80 per cent CEO turnover since Legalization Day. “They got bought out or they left in disgrace,” says marijuana-markets analyst Scott Willis. “None of these guys lost any money. They made a ton of money. They’re good to go.” And they’ve escaped accountability for damaging behaviour.

Terry Booth resigned from Aurora in early 2020, after the company announced significant layoffs, closures of several facilities and a $1 billion write-down. He’s now CEO of Australis, a Massachusetts-based cannabis investment firm. There’s been a trend of former Canadian LP executives looking for the future of cannabis in the faster-growing and more profitable industry in the United States.

Meanwhile, there’s a rosier, albeit humbler, future for companies that specialize in a smaller stable of cannabis products and have fewer steps in the distribution process. When cash was readily available, many start-ups tried to be vertically integrated on day one—managing their own propagating, cultivating, post-harvest processing, packaging and sales distribution. The problem is that all of these areas have unique requirements. The outcome was an industry consisting of jacks of all trades and masters of none.

One producer that has realized it went too fast, too soon is Radient. Though it’s not yet profitable, Radient seems to be turning a corner since freeing itself of Aurora and shedding its long-time president and CEO, Denis Taschuk, and its flawed technology. It has transformed into a maker of white-label vapes, resins, “terp sauce” and the like, earning $2.4 million in sales by its last year-end.

“It is a very different company,” says Danyluk. “They’re still alive, just at a much smaller scale. They ’re working very hard to get this going and dig themselves out.”

Now the CFO of Alberta trucking giant Edmonton Kenworth, Danyluk still consults with Radient on a freelance basis. She has no desire or plans to return to cannabis but doesn’t rule it out. “Am I bitter about the way things went?” she asks. “Absolutely. But I love the industry.”

For now, she’s enjoying her life. It’s drastically different: Her kids are grown, and even though she’s an empty nester, she ensures she makes time for them. She also makes time for her health, her three pot plants and her hobbies, including a recent experimentation with sous-vide cannabis extraction. “It works amazingly,” she’s happy to report.

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