Canada remains one of the only countries in the world that allows legal and regulated access to recreational marijuana. But five years after the drug’s legalisation, the country’s cannabis industry is struggling for survival.

George Smitherman remembers buying his first legal gram of cannabis in October 2018 from a Tweed shop in Newfoundland.

The cannabis company had made headlines two years prior for signing a marketing deal with US rapper Snoop Dogg, which was hailed at the time as a sign of a new dawn in the marijuana industry.

The shop, Mr Smitherman recalls, was “beautiful”.

“I didn’t know if I was in a spa or a jewellery showroom,” he said.

He also remembers the juxtaposition of the product he bought versus the striking space he bought it in – all marijuana products in Canada are sold in generic packaging with plain, government-issued labels.

Still, it was an exciting time, Mr Smitherman recalls. Canada’s long-anticipated cannabis legalisation had just become a reality. Investment was flowing into a brand new market that many thought would get them rich.

Five years later, the industry is dealing with economic struggles far removed from the enthusiasm of those early days.

Take Aurora Cannabis, for example. The Alberta-based cannabis manufacturer – one of the largest in Canada – announced in August that it will be diversifying its offerings and start selling orchids.

That same month, another company, Canopy Growth, sold the multi-million dollar Ontario headquarters it bought in 2017 back to its original owner, candy manufacturer Hershey Canada.

Both companies, along with other cannabis producers, have also given out pink slips to thousands of workers in an effort to cut costs as they continue to generate little to no profit.

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Part of the problem, experts and industry leaders say, is overregulation of the drug as the country attempts to toe a careful line between public health and building a robust cannabis industry.

Others say it’s simply a matter of too many players and too much production that far exceeds demand.

And because Canada is one of the only countries in the world that federally allow the manufacturing and consumption of recreational cannabis, the options for domestic producers to make money outside Canada’s borders remain very limited.

These challenges were difficult to see early on, said Mr Smitherman, a former Ontario politician who is now the head of the Cannabis Council of Canada.

“The thing is, there was no global road map,” he told the BBC, as no other country had attempted to legalise recreational cannabis on such a large scale.

When Canada passed its landmark Cannabis Act in 2018, one of its biggest goals was to move marijuana users away from the illicit market towards a legal, regulated market. It was designed to keep the drug away from minors and limit money flowing into the illegal marijuana trade.

There was also the economic argument as well – that Canadians and the country’s economy as a whole would stand to benefit.

In many ways, that economic equation still holds true: Canada’s domestic recreational market is valued in the billions. In 2022, Deloitte Canada estimated that cannabis added C$43.5bn ($31.91bn; £26.23bn) to the country’s gross domestic product since legalisation.

Michael Armstrong, a cannabis business researcher at Brock University in Ontario, argues that early hiccups paved the way for some of the business challenges seen today.

“One way to sum it up would be to say we’ve kind of had a classic boom and bust,” Prof Armstrong said.

In the early days, many stores were dealing with chronically empty shelves as production could not keep up with demand. Prof Armstrong said this drove cannabis producers to make too much product, which led to a surplus and an eventual downsizing.

It also meant that many still relied on the illicit market to get their marijuana.

On the retail side, cannabis stores were initially very profitable. But a clustering of storefronts over time in the same areas meant retailers had to lower their prices and offer other incentives to compete with other stores nearby.

As of 2023, there are around 3,600 licensed retail cannabis stores across the country and 970 licensed cannabis producers in Canada.

Few of those producers appear to be profitable. Mr Smitherman said a recent survey by the Cannabis Council of Canada found that only 20% are showing some form of positive cashflow.

“The attrition, turnover and consolidation is relentless,” he said of the current business landscape.

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