In the fall of 2018, Canada became the second country in the world to legalize the recreational use of marijuana. Since that time the Canadian cannabis industry has grown dramatically. Last year saw revenues top $3 billion, and that number is expected to double by 2026, according to Statista. (Click here for Benzinga article)

These massive revenues have been driven by first movers in the Canadian market like Tilray Inc., Canopy Growth Corp., and Cronos Group Inc.

. These producers represent what is known as the “first wave,” and have quickly established themselves as the dominant players soon after legalization. First-wave companies took on significant investments, rapidly building out large-scale operations with major labor requirements.

This allowed the companies to gain market share quickly, but it also means their operations are expensive. Early on, cannabis prices allowed for this, but as competition grows, prices are falling. Now many of these producers are reportedly struggling to turn a profit. Expensive operating costs can limit the ability to do so, despite large revenues.

In response to the first wave, new producers have entered the market. Including companies like Cannara Biotech Inc (FRA: 8CB), this second wave is characterized by streamlined operations and a focus on profitability.

With this expanded market, quality products, and a lean business model, Cannara has managed to record positive earnings for its third consecutive quarter and healthy gross margins. Despite having only been on the market since February 2021, the company posted a gross profit of ​​$10.5 million or 61%, earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.5 million on $17.3 million in revenue for the year ended August 31, 2021.

Companies like Cannara are looking to challenge the dominance of Canada’s first movers. 

Article by Johnny Rice