What is happening to Canadian licensed producers profitability? There are many factors contributing to their decline in profitability, but the bulk of the problem stems from overregulation by Health Canada. Health Canada’s strict oversight and control has stalled production and capped the profitability of growers who have seen nearly 50% of their value wiped out in a matter of months.

Health Canada’s woeful inefficiency has resulted in insufficient supply of product in the market itself, and has ham-stringed any opportunity licensed producers may have to achieve economy of scale in the marketplace. Hinderances to growers capacity for expansion, coupled with price-capping, means that companies like Aurora Cannabis Inc. cannot deliver value to stakeholders who have seen their share price drop 74% since August of 2019.

The ramifications of Health Canada’s ineptitude are clearly seen in the inflated price per gram of cannabis and derivative products, as well as the inconsistent rate of supply and access to product at the consumer level.

These problems are likely to persist, with many Canadian licensed producers refusing to comment on their projected profitability for 2020 and beyond. With the industry having evolved from a wild-west in which every would-be player was clamouring for federal licenses, growers are now being forced to shift and address much deeper business challenges ranging from product innovation and differentiation, to increasing market share, and effective product to market execution.

The constraints placed upon the industry from regulators such as Health Canada have garnished growers ability to maintain financial solvency. Consequently, any companies that sought early market expansion without sufficient capitalization are now facing the very real possibility of being blown out of the market – the stock price free-fall that Aurora Cannabis Inc. is experiencing is just one example of this.

The good news is that all of the challenges facing Canadian licensed producers are fixable, albeit at considerable costs to growers. If Aurora Cannabis Inc. can curtail its aspirations for expansion, recover its losses, clear its debt, and achieve profitability, it may overcome its recent decline in share value.

Aurora Cannabis Inc. is hoping to provide greater value to existing equity holders by downsizing, cutting nearly 10% of their staff in the hopes of raising their profitability. It remains to be seen if this aggressive restructuring will pay dividends for the company long-term. The company reports its Q2 results on February 12, 2020 and has yet to announce a positive adjusted EBITDA.