Cannabis in Canada: Valuation Approaches in an Evolving Market – Part 2

In June 2019, FTI Consulting published Part 1 of Cannabis: Valuation Approaches in an Evolving Market, which explored legalization of cannabis for recreational use in Canada, risk factors, and the range of complexities to consider for corporate valuations in the emerging Canadian cannabis industry.

Since our previous publication, a lot has changed from a regulatory perspective in the Canadian cannabis industry since the Cannabis Act came into force in October 2018, whereby the Federal Government of Canada legalized the production and sale of edible cannabis, cannabis extracts and cannabis topicals on 17 October 2019 (Cannabis 2.0).

Thus far, the developments in the Canadian cannabis industry have been far from expectation. The slow roll-out of licenses, the glacial pace of brick-and-mortar store openings, a robust illicit market and the regulatory outlook of the Canadian government have all posed a hurdle to the initial growth expectations of the market. In late 2019 and early 2020 the industry was marked by layoffs, weak financial results, and executive departures.

Part 2 of our cannabis valuation in Canada series is a timely update to market events and trends that impact the valuation of market actors in the Canadian cannabis industry.

Changes in the Regulatory Environment Since Legalization

The Canadian cannabis regulatory environment has experienced a number of changes since October 2018, with three key factors being: the introduction of Cannabis 2.0, facility licencing requirements, and Ontario retail licensing arrangements.