When Medicine Hat mayor Ted Clugston got word that one of Canada’s largest licensed cannabis producers, Aurora, was moving to town in 2018, he felt a little nervous. The Hat, a city of about 63,000, is one of the most politically conservative towns in Canada and it has the oldest demographic in Alberta. 

But like most of the province, Gas Town was reeling from the downturn in oil, so Clugston was looking for ways to diversify the local economy. And cannabis, just a few months away from being legalized, was being celebrated as a largely untapped economic force. A trend was emerging that the cannabis industry could save sputtering Canadian towns that had previously relied on manufacturing jobs and natural resource-driven economies.

“We welcomed them. We courted them. We got on our hands and knees and begged them, frankly, to choose Medicine Hat,” Clugston tells The GrowthOp. “They could have gone anywhere in Canada.”

The region’s cheap electricity, a local pool of skilled labourers and an average of 330 days of sunshine a year — more than any other city in the country — lured Aurora to begin construction on a $120 million, 1.2 million square-foot cultivation facility. 

Those plans have now been adjusted to fit the company’s revenue realities and tight cash flow: Thirty-six grow rooms have been scaled back to six. About 250,000 square feet of the facility is expected to be operational this year, with plans to build out the rest in the future. Clugston says Aurora has told him that the 600 jobs he had hoped for will now be closer to 100. 

Earlier this month, Aurora, which has cultivation facilities in six provinces, issued another round of layoffs. After announcing more than $1 billion in goodwill write downs, 500 workers, including CEO Terry Booth, were dismissed. (Aurora did not respond to requests for comment.)

Aurora is hardly alone. Across Canada, licensed cannabis producers and the towns that keep them running are readjusting their expectations of the Green Rush. Two weeks ago, Tilray, another of Canada’s largest producers, laid off 10 per cent of its staff. So far in 2020, Canadian companies Sundial Growers Inc., Pasha Brands and Zenabis Global Inc., to name just a few, have all endured layoffs. 

“We’re prepared to help them in any way,” Clugston says of Aurora’s operations. “Of course, we know what happened with the cannabis industry. It hasn’t taken off like everybody expected. And we’re dealing with the fallout of that now.”

Rocky retail roll-out

Management at Calgary-based Westleaf originally planned on opening 50 retail stores across Western Canada by the end of 2020. But that strategy has been tweaked. Instead, it will focus on fewer stores in major cities and resort towns like Banff. 

Altona, Man., a town of about 4,500 residents, was one of the cancelled locations. It put a halt to Mayor Al Friesen’s hope to create jobs and expand the local tax base.

“We said ‘yes’ because it would produce jobs,” Friesen says. “We felt a regulated product was better than a ziplocked product, and it was pro-business.” 

But not everyone agreed — a local group launched a petition to prohibit cannabis sales. “I think their reason was, in a nutshell, a feeling that children would be kept safer if there wasn’t a retail operation here,” Friesen says, of that local petition. “That was one of the primary things that we heard. I may disagree with that but that’s how democracy works.”

A town hall later this month will decide the future of cannabis in the town. If Altona goes with a ban, they will join at least six other communities in Manitoba that opted-out of cannabis sales. In Ontario, 73 municipalities have opted-out — another factor hurting the bottom line.

“There are still not enough cannabis stores in most of the provinces across Canada,” says Matt Ryan, the vice president of marketing at Meta Growth, formerly National Access Cannabis Corp. “The customer base is very under-serviced.”

The chain has opened more than 30 stores across the country, from Calgary and Winnipeg to smaller locations like Moose Jaw, Sask. and Morden, Man. They are planning to have 90 stores up and running by the end of this year. 

“The way we look at it is patience and persistence is key,” Ryan says. “The reality is every province is different in how they regulate. There is no perfect consistency across all the provinces. None of it is easy. The evolution of the industry for the retail side is on both us and on the government.”

Ryan attributes Meta’s retail success to its unique partnerships with smaller communities, including Canada’s first federally regulated cannabis store on First Nations land. It’s about 500 kilometres north of Winnipeg, in Opaskwayak Cree Nation, and employs 12 locals. 

“When the legal market emerged, the First Nations that we’ve partnered with saw it as an opportunity for economic growth, an opportunity for jobs and an opportunity to have safe and responsible access to legal cannabis,” Ryan says.

Meta has also opened stores in Nisichawayasihk Cree Nation and the Keeshkeemaquah Reserve near Portage La Prairie in addition to the OCN location.

File – Onekanew Chief Christian Sinclair, of Opaskwayak Cree Nation, at Meta Express + Pick Up on Pembina Highway on Oct. 17, 2018. Photo: Jordan Popowich

“There’s been no negative fallout, no negative stigma,” says Opaskwayak Cree Nation (OCN) Chief Christian Sinclair. “It’s bringing in a lot of new customers into the Opaskwayak Cree Nation from surrounding communities that we’ve never seen before and wouldn’t be shopping here otherwise.”

OCN is a 10 per cent shareholder in Meta Growth, and also owns shares in Trichome Financial Corporation, which supports cannabis businesses and alleviates another hurdle the industry has faced: Aversion to risk and high fees from Canada’s major financial institutions. 

“We still see the industry continuing to evolve,” Sinclair says. “There are bigger opportunities out there.”

All eyes on Ontario

The recreational cannabis market in Ontario presents the largest remaining domestic opportunity.

With more than 60 per cent of the country’s population residing in Ontario and Quebec — about 22 million people — Canada’s two most populous provinces have around 100 cannabis retail stores that are actually up and running. More are on the way, but hopes for the future do not secure jobs in the present. Alberta, with a population of 4.3 million, has nearly 400 stores. 

In November, Ontario ditched the much maligned lottery system to move towards open allocation. According to some estimates, the change could lead to the creation of 14,000 jobs. But it won’t happen overnight. 

Beginning in April, the province will authorize 20 new stores per month — amounting to just 250 cannabis stores operating in the province by the end of the year.  

In the spring, farm-gate cannabis retail will allow customers to buy product directly from cultivation facilities, something that Canada’s largest cannabis company, Canopy, was vying for as part of its transformation of Smiths Falls, Ont., a town of about 10,000 residents. 

Canopy’s impact on the former Hershey’s chocolate factory and the surrounding town is well-known. Six years ago, the company, then called Tweed, moved in, investing more than $250 million in development and creating 1,600 full time jobs, says Mayor Shawn Pankow.

“We went from a community struggling with much higher than average levels of unemployment to one now experiencing labour shortages,” he says. The local real estate market has also benefited. 

“We have transformed from a very soft buyers-market to a demand-driven sellers’ market where bidding wars are now common,” Pankow says. “The average home in Smiths Falls has appreciated by approximately 40 per cent over the past five years and 20 per cent over the past year.”

File – Canopy’s transformative impact on Smiths Falls, Ont., has been touted as a cannabis industry success story. But the company reported deep losses last Friday, Feb. 14. Photo: Julie Oliver/Postmedia

The question is, will the success last?

In the last year, Canopy’s stock price has climbed as high as $70 per share and plunged below $20. In November, Canopy began restructuring its overseas operations and laid off 15 per cent of its Latin American workforce. The worry was that layoffs might soon reach closer to home. 

On Feb. 14, Canopy released their third quarter results. Despite slow sales, a high cash-burn rate and the delayed release of their cannabis-infused drinks, the results were considerably better than industry insiders had predicted. The company made up ground by reducing operating expenses and reported an adjusted EBITDA loss of $92 million — a marked improvement from the previous quarter when losses mounted to $156 million.

But that doesn’t necessarily translate to job security for cannabis workers. In an interview with Bloomberg last week, Canopy CEO David Klein said further layoffs are still a possibility. “There are no sacred cows,” he said. “We’ll look at everything.”

This is the topsy-turvy reality of the cannabis industry. 

In Medicine Hat, Mayor Clugston drives by the Aurora property nearly every day. The number of contractors on site has dwindled, he says, and the pace of those who remain is less hurried than it used to be. But they’re still there, trying to achieve the dream of becoming one of the world’s largest cannabis operations. 

“There was so much optimism when it became legal,” Clugston says. “Things just maybe take a little bit longer than you hoped.”