Toronto (Canada) (AFP)

Even if the coronavirus epidemic has boosted cannabis sales in Canada, it risks cutting the wings of a sector undergoing reconstruction less than two years after legalization, experts say.

For fear of shortages or to manage their stress, Canadians rushed during confinement to cannabis stores and sites. Sales increased by almost 20% in March and April, according to Statistics Canada.

“The Covid-19 has had a positive effect on the legal market. We have seen some transfer from the black market to the legal market, ”Bradley Poulos, an industry expert who teaches at Ryerson University in Toronto, told AFP.

The coronavirus nevertheless came at the worst time for this young industry already facing “its share of challenges”, including profitability problems, a year and a half after Canada became, in October 2018, the second country after Uruguay to legalize this sweet drug, he adds.

The move had created a whole new economy. Pioneers, Canadians have established themselves among the leaders, developing abroad, especially in Europe, seen as a future large market for medical cannabis. The world of finance has also opened their arms to them and many companies have been listed on the Toronto and New York stock exchanges.

- Edible cannabis -

Based in the Ottawa region, Canopy Growth is the largest producer of listed cannabis in the world with a capitalization of around 5 billion euros. Its main competitors include Cronos Group and Aphria, also based in Ontario, or Aurora Cannabis and Tilray, in the west of the country.

But the euphoria quickly subsided. Between overly optimistic projections, management problems and failures in marketing, the sector found itself in overcapacity while companies accumulated losses and saw their stock market valuation plummet.

"The ability of the legal market to compete with the black market has been hampered by a number of government rules," said Richard Carleton, CEO of the Canadian Securities Exchange, which has about 175 cannabis companies - Canadian and American - listed in Toronto. .

Restrictions on advertising and the slow deployment of physical stores have weighed on industry performance, he said.

This had great hopes in the opening of hundreds of shops in 2020 and the recent legalization of new products, including edibles and cannabis-infused drinks, whose margins are said to be higher than dried flowers. But these plans have been partially disrupted by the epidemic, says Carleton.

-On one's last legs-

"This is not how we planned the launch of our cannabis drinks" summed up in mid-March to AFP Jordan Sinclair, vice president of communications at Canopy.

The epidemic weighed on producers' operations when most of them were undergoing strategic restructuring.

Since last year, many companies have had to curb their expansion plans and cut back on some of their operations in order to control their spending in order to be profitable. A number of officers have been replaced.

Symbol of the challenges of the industry, Canopy announced in March the closure of two greenhouses in British Columbia and the dismissal of 500 employees.

Aurora Cannabis announced Tuesday that it too will close five production sites and lay off 700 workers.

The crisis has exacerbated liquidity problems in the industry, threatening the survival of small companies, said Rishi Malkani, head of the cannabis sector at Deloitte Canada.

Since the start of the year, around ten companies have filed for bankruptcy. Others are expected to follow "by summer or fall," he said.

"If you look at it from the good side, the pandemic will only accelerate the consolidation cycle already awaited in the industry," says Mr. Malkani. "The smallest will disappear and those who are better armed and better capitalized will dominate the sector. "

Richard Carleton wants to be optimistic despite everything, seeing the sector “continue to grow” and rejoicing that cannabis was considered essential during the epidemic. “This has further reduced the stigma associated with the sector. industry a legitimacy ”.

© 2020 AFP