Village Farms International Inc (NASDAQ:VFF) CEO Michael Degiglio discussed the difficult Canadian Cannabis market and the opportunities it may create at the Benzinga Cannabis Capital Conference in Chicago on Wednesday.
Degiglio said the Canadian cannabis market has gotten a bad reputation among investors who have been burned by the likes of Canadian legal producer stocks such as Canopy Growth Corp (NASDAQ:CGC), Tilray Inc (NASDAQ:TLRY) and Aurora Cannabis Inc (NASDAQ:ACB), each of which is down more than 87% over the past three years.
"I think Canada gets a bad rap because a lot of it was set up believing that cannabis, for instance, would sell for $15 per gram and everybody would make money, and that's probably got to be realigned," Degiglio said.
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Degiglio said one of the biggest hurdles for Canadian operators is the Canadian tax structure.
"On a gross revenue basis, 70 cents of every dollar of revenue winds up with the Canadian government in one form or another," he said.
Despite the challenges, Village Farms is one of the rare Canadian producers that has found a way to operate profitably.
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Consolidation Ahead: The downturn in the Canadian cannabis market has led to a flurry of consolidation, but Degiglio said many of those deals don't seem to be very prudent for the buyers. The largest Canadian cannabis merger in recent years has been the union of Tilray and Aphria in 2020.
"The old saying in M&A 101 is you make money on the deals you don't do, not on the ones you do. I think it applies in Canadian cannabis quite a bit because I haven't seen one deal that's accretive at all. I'm happy that our competitors did them, by the way, because it provides consolidation," Degiglio said.
Looking ahead, Degiglio said Canadian cannabis companies that haven't been prudent with their spending and operations could be in for another level of pain, which could serve as an opportunity for Village Farms and other potential buyers.
"Once we see what the landscape in Canada is, I think the next quarter to three quarters there's going to be a lot of scorched earth, and it's unfortunate for a lot of companies. There's no capital, the banks are being tied up. And then we can look at the landscape clearer and see if there are assets we want," he said.
Learn more about this and other upcoming Benzinga Cannabis events at this link.
