Cannabis Market 2023 Year-End Review

Experts see a shift toward stabilization

In an interview with INN, Rami El-Cheikh, corporate strategy partner at EY-Parthenon, reflected on the cannabis trends he witnessed in 2023, admitting that he hasn’t seen much of a difference compared to years past.

“(The market is) more or less the same, frankly,” he said during the conversation. “Obviously, 2023 was more intense than 2022 in terms of profitability (and) growth, (but) a lot of companies have continued to underperform. They're burning cash less than before, but they're still not financially sustainable at this stage, and they're still relying on the money that they've raised in the past to sustain their financial operations.”

He noted the continued need for operators to be strategic with their cost-saving measures, an unfortunate reality in a market crowded with too many players. “(Companies) have been underperforming less, because in 2022 and 2023 they were very active with their cost-reduction programs,” El-Cheikh said. “Companies are doing better only because they reduced their costs. They divested a lot of non-core assets, but they're not financially sustainable. We're still seeing a lot of oversupply because many players (who) were supposed to exit the market haven't exited yet.”

For his part, Nawan Butt observed small changes that indicate the Canadian market is maturing.

“If you could put it in one line, the rightsizing of Canadian industry has been the big trend this year,” the portfolio manager at Purpose Investments explained to INN. “The infrastructure was created with a sort of blue-sky thinking … (and) producers were way too far ahead in terms of demand anticipation. Now they're starting to get to a size where the equilibrium between supply and demand can be reached."

Butt continued, “Investors are finally starting to rightsize their expectations as well. What we're seeing is that valuations are becoming more stable as the view of the future becomes more stable. So rightsizing investors are starting to understand, and the stabilization of valuations is an indication of that as well.”

The market appears to have eliminated the players who expected to achieve quick success, leaving a pool of patient actors who understand the reality of how new markets, such as the cannabis industry, develop and grow.

Meanwhile, some of the industry’s most successful operators have chosen to diversify their portfolios or expand into new markets while they wait for new legislation. Tilray Brands (NASDAQ:TLRY,TSX:TLRY) and Canopy Growth (TSX:WEED,NASDAQ:CGC) are two of North America’s biggest cannabis companies, with a combined market capitalization of over US$2 billion as of December 7. Both have established operations in multiple countries and have made moves this past year to take advantage of Europe’s growing market for medical cannabis.

Tilray has had a major presence in Europe for years, and in 2023, its expansions included increased distribution in Italy and the Czech Republic as medical cannabis legalization spread across Europe. Meanwhile, Canopy Growth focused its efforts on the German medical cannabis market, announcing the rebranding of its medical cannabis services in the country from Spectrum Therapeutics to the aptly named Canopy Medical on September 6. In July, Canopy Growth completed the acquisition of an EU-GMP-certified cannabis processing facility in Portugal, a country in which all drugs have been decriminalized since 2001, although only medical cannabis is legally sold.