Global Ganja Report

Canada's largest licensed producer of cannabis, with globe-spanning operations, is shutting down two massive greenhouses in British Columbia, and laying off hundreds of workers. Industry observers call it a sign that infrastructure overshot the market in the post-legalization euphoria.

Ontario-based Canopy Growth on March 4 announced plans to shutter two cultivation facilities in British Columbia—resulting in the layoffs of some 500 employees. In addition to shuttering 3 million square feet of greenhouses in BC, the company also said it is dropping plans to open a greenhouse in Ontario.

Rethinking demand forecast
Canopy Growth's CEO David Klein admitted to over-optimistic market projections in announcing plans to shut the 1.7-million-square-foot greenhouse in the town of Delta and a 1.3-million-square-foot greenhouse in Langley.

The two facilities, purchased in early 2018 for $400 million Canadian, make up two-thirds of Canopy's total licensed operations.

"Following a strategic review of production capacity and forecast demand, the company announced today that these facilities are no longer essential to its cultivation footprint," Klein said in a statement to the Vancouver Sun.

"Nearly 17 months after the creation of the legal adult-use market, the Canadian recreational market has developed slower than anticipated, creating working capital and profitability challenges across the industry," added Canopy in a statement quoted by CNN Business. "Additionally, federal regulations permitting outdoor cultivation were introduced after the Company made significant investments in greenhouse production."

Health Canada issued new regulations allowing outdoor cultivation in June 2018, in what the Globe & Mail called "a new, cheaper source of competition to established indoor producers."

Deepak Anand, CEO of the Toronto medical cannabis firm Materia Ventures, told the Vancouver Sun he expected more companies to opt for cheaper outdoor cultivation in response to diminishing market expectations.

"Companies looking to save on capital, or cut back on capital expenses, are going to look at either not building out or scaling back on their existing builds-out," Anand said. "Capital markets have completely dried up."

Workers head back to Central America 
BC's local The Province visited the facilities to speak with some of the employees facing lay-offs. Many are migrants from India and Central America brought in under Canada's Temporary Foreign Worker Program.

Elias Salomon, who came on a six-year permit but will return to Guatemala after just two years, displayed an attitude of resignation. "It's a business decision, right?" he said. "But it's over so right now we are waiting for the flights and we will go home soon."

Byron Cruz of a local advocacy group, the Watari Counselling & Support Services Society, spoke to The Province after meeting with the Canopy workers. He said Canopy's Guatemalan employees were earning BC's minimum wage—C$13.85 per hour—which they mostly sent home to their families.

"They [companies] prefer to recruit people with kids and families because they know that they're more vulnerable and then they will kind of not complain, right?" Cruz said. "Most of these workers have families and they are First Nations in Guatemala. They are Indigenous people. That’s what I know."

Downsizing from an industry leader
Canopy's move is all the more significant as the company is a leader in the industry. In 2018 it became the first "plant-touching" cannabis company to list on the New York Stock Exchange. That same year, its stocks soared after the infusion of a massive $4 billion investment from beer and beverage giant Constellation Brands in August.

Canopy has operations elsewhere around Canada. It is uncertain if its recently announced plans for a giant greenhouse facility on the Kahnawake Mohawk reserve outside Montreal will be affected by the new decision.

Canopy also has a growing international footprint. In 2018 it announced a joint venture with a Danish firm to cultivate cannabis for the European medical market. It has also invested millions of dollars in Lesotho, the landlocked African kingdom that has aggressively opened its cannabis sector in recent years.
 

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