As another cannabis retailer tries to save itself, is the industry going up

Got a light? Canada’s weed industry could probably use it.

Tokyo Smoke is the latest Canadian cannabis retailer to close some of its locations and seek creditor protection in an unpredictable industry grappling with too many stores, high overhead costs and ultra-low retail prices.

One of the earliest brands to form in Ontario after the federal legalization of pot in 2018, Tokyo Smoke is shuttering 29 stores and restructuring its business under the Companies’ Creditors Arrangement Act, it announced Thursday. It will still have 167 locations open across four provinces.

“It’s surprising and it’s not surprising at the same time. I think probably people are surprised to see such a prominent name file for [creditor] protection,” said Matt Maurer, a partner and chair of the Cannabis Law Group at Torkin Manes LLP in Toronto.

“But at the same time, it’s no surprise to people in the industry, and I think people in general, that the cannabis industry is going through a little bit of turmoil.”

Canada has seen a slew of cannabis retailers and producers file for creditor protection or close stores in the last several years, with many falling behind on their tax obligations, as well.

Maurer notes that the range of chains — big brands, mom-and-pop stores, people who own one or two stores versus those that own 10 or 15, some of which are franchised — makes the market a mixed bag.

In Ontario, Canada’s largest regulated weed market, ahead of Alberta and B.C., “a lot of these companies wanted to expand quickly when retail was allowed to grab a good size of the market share. And that was a very logical strategy,” said Maurer. 

A black market that just won’t quit

But those stores have had to compete with a still-thriving black market. Bloomberg analyst Duncan Fox recently wrote that the illegal pot industry would remain “a significant barrier” to producers’ ability to raise prices, because of intense competition.

That was one of the challenges outlined in Tokyo Smoke’s filing: It cited a thriving illicit market as having impacted its revenues, and that it “disproportionately” impacts licensed retailers, diverting money from them into an illicit market estimated to be worth between $2 billion to $4 billion.

“When you put it all together, you’ve got a lot of competition, your prices are going down and your overhead is probably a little bit more than you’d like it to be,” said Maurer. “And that’s putting a lot of pressure on a lot of different stores.”

Fox estimated in his June report that the Canadian cannabis market could grow about four per cent to a value of $4.8 billion in 2024, even…