Tokyo Smoke is the latest casualty in Canada‘s unpredictable cannabis sector, announcing it will close several locations and seek creditor protection. The industry is grappling with a surplus of stores, high overhead costs, and rock-bottom retail prices.
One of Ontario’s pioneering brands after cannabis legalization in 2018, Tokyo Smoke is shutting down 29 stores and restructuring under the Companies’ Creditors Arrangement Act, leaving 167 locations open across four provinces.
Matt Maurer, partner and chair of the Cannabis Law Group at Torkin Manes LLP in Toronto, noted that it’s both surprising and unsurprising. People might be shocked to see a well-known brand seeking creditor protection, but those in the industry aren’t.
Over the past few years, numerous cannabis retailers and producers in Canada have filed for creditor protection or closed, often struggling to keep up with tax obligations.
Maurer points out that the diversity in the market—with big chains, mom-and-pop stores, single-store owners, and those with multiple outlets, including franchises—creates a complex landscape.
In Ontario, Canada’s largest regulated weed market, companies initially raced to expand quickly to capture market share. That was a logical strategy at the time.
However, these stores face stiff competition from a robust black market. Bloomberg analyst Duncan Fox highlighted that the illicit cannabis market remains a significant barrier to raising prices due to fierce competition.
Tokyo Smoke’s filing acknowledged this challenge, citing the thriving illicit market as a factor hurting revenues. The illicit market is estimated to be worth between $2 billion and $4 billion.
Considering all these factors—intense competition, falling prices, and higher-than-ideal overheads—it puts significant pressure on many stores, as Maurer explains.
Fox’s June report projected modest growth for the Canadian cannabis market, estimating it could reach $4.8 billion in 2024, driven mainly by new products like vapes, edibles, and beverages. However, retail prices for regulated products have dropped nearly 30% since 2018, squeezing producers.
Monthly recreational cannabis sales peaked at $469 million in August 2023, but growth has slowed, with June 2024 sales reported at $405 million, according to Statistics Canada.
Ontario initially used a lottery system for cannabis retailers in 2018 to stabilize supply, later transitioning to an open market in 2020. This shift led to a rush of new cannabis businesses, some overpaying for leases, according to Maurer.
Store owners often didn’t know where competitors were setting up during the licensing process, leading to overcrowding. A massive influx of stores opened within a short period, sometimes right across the street from each other.
Despite the challenges, cannabis legalization advocate Neev Tapiero remains optimistic about the industry’s future in Canada and abroad. The legal system for cannabis, though flawed, is better than the illegal system.
Canada may serve as a case study—good or bad—for other countries considering federal cannabis legalization.
A Statistics Canada study from April revealed that over two-thirds of Canadian consumers who used cannabis in the past year purchased it legally.
As the industry evolves, Tapiero predicts another boom, particularly if the U.S. moves towards legalization. Big brands like Budweiser or Marlboro might enter the market, causing another shift. Then, the dust will settle again.
One of Ontario’s pioneering brands after cannabis legalization in 2018, Tokyo Smoke is shutting down 29 stores and restructuring under the Companies’ Creditors Arrangement Act, leaving 167 locations open across four provinces.
Matt Maurer, partner and chair of the Cannabis Law Group at Torkin Manes LLP in Toronto, noted that it’s both surprising and unsurprising. People might be shocked to see a well-known brand seeking creditor protection, but those in the industry aren’t.
Over the past few years, numerous cannabis retailers and producers in Canada have filed for creditor protection or closed, often struggling to keep up with tax obligations.
Maurer points out that the diversity in the market—with big chains, mom-and-pop stores, single-store owners, and those with multiple outlets, including franchises—creates a complex landscape.
In Ontario, Canada’s largest regulated weed market, companies initially raced to expand quickly to capture market share. That was a logical strategy at the time.
However, these stores face stiff competition from a robust black market. Bloomberg analyst Duncan Fox highlighted that the illicit cannabis market remains a significant barrier to raising prices due to fierce competition.
Tokyo Smoke’s filing acknowledged this challenge, citing the thriving illicit market as a factor hurting revenues. The illicit market is estimated to be worth between $2 billion and $4 billion.
Considering all these factors—intense competition, falling prices, and higher-than-ideal overheads—it puts significant pressure on many stores, as Maurer explains.
Fox’s June report projected modest growth for the Canadian cannabis market, estimating it could reach $4.8 billion in 2024, driven mainly by new products like vapes, edibles, and beverages. However, retail prices for regulated products have dropped nearly 30% since 2018, squeezing producers.
Monthly recreational cannabis sales peaked at $469 million in August 2023, but growth has slowed, with June 2024 sales reported at $405 million, according to Statistics Canada.
Ontario initially used a lottery system for cannabis retailers in 2018 to stabilize supply, later transitioning to an open market in 2020. This shift led to a rush of new cannabis businesses, some overpaying for leases, according to Maurer.
Store owners often didn’t know where competitors were setting up during the licensing process, leading to overcrowding. A massive influx of stores opened within a short period, sometimes right across the street from each other.
Despite the challenges, cannabis legalization advocate Neev Tapiero remains optimistic about the industry’s future in Canada and abroad. The legal system for cannabis, though flawed, is better than the illegal system.
Canada may serve as a case study—good or bad—for other countries considering federal cannabis legalization.
A Statistics Canada study from April revealed that over two-thirds of Canadian consumers who used cannabis in the past year purchased it legally.
As the industry evolves, Tapiero predicts another boom, particularly if the U.S. moves towards legalization. Big brands like Budweiser or Marlboro might enter the market, causing another shift. Then, the dust will settle again.
Source : Times of India
