By Don Mills
One of Canada’s biggest cannabis companies is located in Moncton, N.B.
It will surprise many that Organigram is ranked as the third largest medical and recreational cannabis producer in the country, and employs more than 1,000 people, with 800 of those working out of their 525,000 square foot plant in Moncton. For perspective, that is the size of four Costco stores.
The plant uses a three-tiered vertical growing infrastructure to cultivate its products. The company is not only one of Moncton’s largest private sector employers, but also one of New Brunswick Power’s biggest customers, with a monthly electricity bill of $1 million.
The company was initially focused on the medical marijuana market before marijuana was legalized in 2018. The legalization of marijuana has led to a decline in the medical demand for marijuana which previously required a prescription.
Cannabis is an important source of revenue for the New Brunswick government. Cannabis NB had total sales of over $80 million in the 2023 fiscal year, generating more than $18 million in net income for the province. Cannabis NB has 27 retail outlets in 18 communities across the province. Across Canada, sales of recreational cannabis totaled $ 5.2 billion in 2023.
Cannabis was identified early by New Brunswick as a growth opportunity for the province. There are already more than 2,000 people employed in the sector and the export value of cannabis is becoming significant. In 2023, the revenue generated by the production of
cannabis exceeded $350 million, most of which was exported elsewhere.
Organigram is a publicly traded company on the TSE (OGI) with its head office in Toronto. It was founded in 2013 in Moncton and began as a medical cannabis provider. Last year, it had revenues of $160 million. In its most recent quarter, the company reported a profit of nearly $3 million.
The company’s products are available across Canada and the company is making inroads in the European market through its’ minority sake in Germany’s Sanity Group. In fact, the company’s international revenues approached $20 million in 2023. International sales are much more profitable for the company because they are not subject to an excise tax.
British American Tobacco (BAT) has been one of the company’s major investors, last November investing nearly $125 million in the company to support its growth agenda and expand the company’s geographic footprint. BAT owns about 30 percent of the company’s common stock.
Organigram is investing considerable resources in its research and development efforts. The company has one of the largest research departments in New Brunswick, with more than 30 people devoted to the development of new products and the methodologies used to produce their products. In fact, the company has a number of patents pending on its research. One
interesting patent is related to improving the absorption rates for its products which could be an important differentiator in its products which is being promoted as a new disruptive inhalation format.
In a recent Insights podcast, Beena Goldenberg, CEO of Organigram outlined some of the challenges facing the nascent industry, including the fragmentation of the young industry which is ripe for consolidation because there is a need for scale to be successful
One is the biggest challenges is the excise tax on cannabis. Originally, the federal government expected legalized cannabis to be sold for $10 a gram. On that basis, it implemented a fixed excise tax of a one dollar per gram. According to Goldenberg, that excise tax generates nearly a billion dollars per year for the federal government.
The federal government did not anticipate that the price of cannabis would drop to $3 per gram due to competition from the illegal market. Producers now pay the government a third of their revenue to the federal government. Clearly, this presents a serious challenge for many producers in terms of financial viability, and Goldenberg believes there is a need to amend the current excise tax regime to a percentage of sales, rather than a fixed amount per gram to reflect the reality of the market.
Another challenge for the industry is the availability of the product to the public. Unlike alcohol, which is widely available to the public, cannabis products are only available through dispensaries like liquor commissions. Goldenberg makes a strong case for lifting the limitations on the sale of cannabis products which she believes should be available in bars and at major events like concerts. This is particularly important to the industry as it develops cannabis-infused liquified products.
Another challenge is the continuing stigma associated with the use of cannabis which has only been legal in Canada for five years or so. Having been brought up to believe that cannabis was illegal and frowned upon by society, it will take some time for the public to accept that cannabis has the same status now as alcohol.
It is interesting to note that, according to StatsCan data for 2023, those under 45 are twice as likely to use cannabis compared to those 45 older. The use of cannabis to address sleep, anxiety and pain issues will eventually help reduce the stigma associated with cannabis use.
The black market for cannabis has declined since the legalization of marijuana but still represents a significant portion of the market. In 2022, Canada’s Department of Public Safety indicated that a third of the marijuana market is still conducted illegally. The best way to compete against the illegal market, according to Goldenberg, is through innovation and product development, producing products that cannot be obtained except through licensed distributors like Organigram.
There is also the concern about the product safety of cannabis purchased illegally, particularly related to the presence of pesticides, mold and high yeast commonly found in illegal products.
To sell produce and sell cannabis in Canada requires being licensed by Health Canada under the Cannabis Act enacted by Parliament in 2018. According to the most recently available StatsCan data, there are more than 600 licensed cannabis cultivators in Canada, most of whom are very small. Most of the cannabis cultivated in Canada is grown under cover.
Goldenberg indicated that the top 10 cannabis companies in Canada represent about 40 per cent of the revenues, with Organigram having a 7.5 percent market share. The largest company has less than 10 per cent of the total market. There are more than 150 licensees with revenues of less than $1 million in sales.
The ability to provide a consistent quality and reliable supply of cannabis products will be the key to gaining market share and growing a company. Scale is important and the cannabis industry will inevitably consolidate to take advantage of the market conditions that exist both nationally and internationally. That is certainly the expectation of Goldenberg and Organigram.
The growing sophistication of the cannabis market in terms of product selection and use will continue to evolve. There will continue to be a move away from combustible products to consumable products like gummies and beverages. The winners will be those that develop innovative products to satisfy the recreational and medical uses of cannabis.
With an aging population, there are clear opportunities to expand the market to address age related issues like sleep and pain management. With the development of cannabis infused liquified products, expect the availability of cannabis products to expand beyond the current model of dispensaries.
New Brunswick is well positioned to benefit from the growth in the cannabis sector and Goldenberg has the ambition to become Canada’s leading cannabis producer. That is a promising combination.
Don Mills is co-host of a popular podcast, Insights. He is planning a book on prosperity in the Atlantic. (The Notebook).
