This is an essay from the Business Policy course.

 

CANOPY GROWTH  CORPORATION  The External Environment 

 

INTRODUCTION  An organization's external environment is significant in that, in many ways, it influences their

ability to succeed. Much of Canopy Growth’s vision is to expansion. Therefore it is imperative to

understand how these external elements can encourage, as well as hinder, their ambitions.

Implementing a PEST analysis is a simple, but very effective, tool that allows an organization to

understand how political, economic, social, and technological trends impact Canopy Growth and

the legal cannabis industry.

MACRO-ENVIRONMENTAL ANALYSIS  

Political Influences   The most significant political influence for Canopy Growth would be that of the Canadian

Government. Despite it being a multinational company, this is where their operations began and

still primarily exist. When established, the laws surrounding cannabis restricted the use of

cannabis for medicinal use only. After being elected in 2015, Prime Minister Justin Trudeau took

an initiative to reduce criminality associated with sales of non- regulated cannabis. As a result, in

October of 2018, the Cannabis Act has made the use of medicinal and recreational cannabis legal

across all of Canada. This law limits the sales and production of cannabis products to

organizations licensed by the government.

(7)

As previously stated, the Cannabis Act of 2018 was designed to reduce criminality by restricting

cannabis access to minors (below the age of 18) and profits of illegal distributors. Prior to the

law, illegal sales were estimated at CAN$6 billion, or $4.4 billion USD, a year.(5) Under the

law, one is legally allowed to possess no more than 30 grams of legal cannabis products with a

THC level of .3% or more. Much like alcohol restrictions, driving under the influence will also

result in serious consequences. Moreover, even if it is legal in that country, it is illegal to cross

any national borders with cannabis products. This includes bringing outside cannabis into the

country.(4)

In addition to these regulations for domestic consumption, the Cannabis Act has restrictions

pertaining to importing and exporting cannabis products. Importing is strictly restricted to

“starting materials” for new licensee’s. Exporting is limited to medicinal products or scientific

research in countries/states where it is legal. Additionally, the producer has to have a permit for

exporting in addition to all other permits required as a legal distributor. Permits are given after

careful and strict consideration by Health Canada. They are careful to not break any obligations

set forth by treaties and ensure exports are in line with the regulations of the Cannabis Act.(6)

As strict as the government and lobbyists have been about who and how individuals are allowed

to buy and sell, there appears to be a disconnect in how the cannabis industry operates in regards

to the safety of their environment. Many consumers complain about the excessive packaging

used by legal distributors. This is a direct result in the guidelines created by Health Canada.

Before legalization, much of cannabis products were sold in plastic bags that were easy to

dispose of but made access easier to young children. Under the new laws, packaging must be

able to prevent any contamination to the product, tamper-proof, and child-proof. The containers

used now are described as large plastic containers that are disproportionate to the amount of

cannabis inside. This is due to all of the required information that are required by law to be

printed on the package. These strict regulations make it incredibly difficult for distributors to

provide containers that are more environmentally friendly. This has had an impact on whether or

not someone will buy from a legal distributor.(8)

Economic Issues 

 

(9)

Currently, Canada has an economic freedom score higher than any other American regions and

above world-wide averages at 77.7. Having the 10th largest economy, the government is focused

on trade diversification, increasing exports, as well as supporting their domestic industries small

and large. According to the 2019 index of economic freedom, “Canada’s economic

competitiveness has been sustained by the solid institutional foundations of an open-market

system and a high degree of regulatory efficiency.” (9)

(11)

The cannabis industry is fairing well since legalization in 2018. This “Budding Market”(10) has

seen an increase in usage since legalization. As it is a newer industry, it should come as no

surprise that it is estimated to provide new jobs and boost local economies. This is evident in the

amount of licenses issued since legalization. Moreover, it is anticipated that the Canadian

government will collect $400 million annually from taxes levied on sales of cannabis at $10 a

gram. (11) However, the high levels of taxation can be detrimental to Prime Minister Trudeau’s

intent on reducing criminal activity in relation to cannabis products. . The heavier the tax rate

imposed on retailers, the likelihood that customers will turn to illegal sources. This can be seen

in the state of California, where legal distributors are plagued by taxes that make it impossible to

compete with the black market.(12)

Socio-cultural Trends  Cannabis has been used in many cultures as medicine and other aspects for thousands of years,

as early as 10,000 B.C. in China. Due to the opium epidemic and surge in alcohol consumption

post Civil War in 1800’s, there were increased concerns of mind altering drugs and effects of

similar products. Consequently, other drugs were also categorized as harmful products, including

marijuana and has become illegal since 1937. In the 1930’s a film was even produced to teach

the public about the dangers of marijuana which skewed the public perception even further. In

1970, it was officially listed as a Schedule I substance in the U.S. Controlled Substances Act.

Since then for almost 90 years the opinion of marijuana as a whole in the eye of the public was

similar to the views of psychedelic drugs as detrimental and sometimes even fatal products.

However, this stigma soon began to change, giving way for a new view on cannabis. As the

potential medical benefits of marijuana became more publicized, the perspective of marijuana

changed. There was a significant shift in consumer perspective over cannabis as well as

government policy as more knowledge developed. In just 50 years, the amount of Americans

who believed marijuana should be legalized increased five times as much, up to 62%. This plant

is now widely accepted for patients with chronic pain and seizures. Change in consumer values

for more authentic, transparent, natural lifestyles supported the movement towards accepting

marijuana use. (3)

Soon enough once illicit substance, became legalized in over 33 states, of which 10 states allow

recreational use of marijuana, with rapid growth of marijuanas popularity, breaking it’s previous

stigma. CBD’s, a natural compound within cannabis plants, gummies today are the third most

researched food term on Google. It

also comes in many forms, continuing to win consumer popularity. This industry has grown

tremendously in a short period of time and continue to see support from other companies,

winning heavy investments. In 2018 the industry for legal marijuana in the U.S. consisted of

$10.4 billion and 250,000 jobs, expected to increase to $17.5 billion in 2030. Worldwide,

cannabis spending is expected to reach $66 billion in 2025. Overall, the consumer and

investment views are strong, projecting a large increase in the medical marijuana industry and a

significant increase in legal cannabis spending.

(2)

Technological Trends  Technology is a major player for the future of this industry. An industry that is in its early phases

and whose previous illegal sales consisted of predominantly cash sales, companies can now

better understand cannabis consumers purchasing habits with new technologies like software as a

service (SaaS). This also enables the industry to properly track products, which was otherwise

not possible previously.

Additionally, the cost of growing cannabis is relatively high, which is why technological

innovations as small as LED lights spectral tuning, improved hydroponics and Tesla’s

Powerback solutions are revolutionary to the marijuana industry, giving companies more control

over production. Biosynthesis has also paved the way for efficient extraction techniques that

allow for better on-demand production. Seeing that sales and consumer confidence are expected

to increase, efficient production is key go meeting a rapid growing demand. Some technological

innovation now facilitate the at home use of marijuana. This includes products like infusers,

vaporizers, smart grow boxes, and more (1). As technologies like AI, machine learning and

blockchain continue to grow, we may see it’s application in the cannabis industry, especially

within production.

INDUSTRY STRUCTURE ANALYSIS

​Porter's Five Forces Analysis

The cannabis industry has not been fully exploited to maximum potential due to the legal barriers

in place. However, Canopy Growth Corporation has been able to operate within the legal

jurisdictions in North America. This paper shall, therefore, discuss the company's business policy

that has harnessed its growth.

Competition 

​The company was faced with various barriers of entry at the beginning. At first, cannabis was 

not a legal drug in Canada. These legal issues made it hard for the company to obtain permits for

the production and sale of cannabis. However, the company received a breakthrough when

marijuana was legalized for recreational use (Cox, 2018). Canopy Growth has a great deal of

competition the company must look out for. One of the main competitors is Aurora Cannabis

because Aurora so far have been 20 percent of the marijuana market in Canada. Also they

produced over 700,000 kilograms per year. Another competitor that Canopy Growth must watch

out for is Cronos Group because Cronos used to be on top of the race to become the alpha

company but due to being to slow on establishing assets, it lost its lead. Canopy Growth has to

make sure they are selling products that the other companies don’t have. Also since the

Marijuana is an upcoming market, focusing on getting curious/new customers should be a

priority to make them become loyal consumers.

Suppliers

Canopy Growth has lot of suppliers which makes supplier power low due to Canopy’s

ability to just switch suppliers. Due to high demand of the marijuana industry, suppliers

have to be very reasonable with Canopy Growth in order to achieve profits, which also

causes suppliers to have less power. Canopy Growth just needs to find the right suppliers

that has low costs but due to its abundance of suppliers, using different suppliers

shouldn’t be a problem. The company's wide range of products is also a strength that has

allowed the company to generate more revenue and therefore strengthening its position

in the cannabis industry. Canopy Growth Corp has since ventured into a global market

and thus diversifying its operations.

Buyers

Having products that are unique from others should be a top priority for Canopy Growth because

in this industry, having someone hooked on your products will get you more buyers. If a

customer likes the product, they will buy it in bulk, because it’s marijuana, and it will make it

harder for the customer to ever switch if the quality is top notch. Since the buyer will buy the

products in bulk, prices shouldn’t be a problem due to the demand and quality. Canopy Growth

should highly market and make sure it’s product are unique to build a large foundation of loyal

customers. Doing so will provide a lot of sales and henceforth a profit.

New Entrants

The threat of new entrants isn’t a big problem for Canopy Growth because the industry it’s in is a

hard industry for new entrants to come in. This is due to the fact of the government heavily

regulating laws for marijuana and the fact that Canopy Growth sells differentiated products

instead of standardized products. If Canopy Growth keeps using it’s competitive advantage it has

and keep having unique products, new entrants would have a lot of trouble competing against

them. Canopy Growth Corp has been able to overcome threats of new entry. Besides, by

producing raw materials, the company has been able to deal with supplier power. The buyer

power of the Canadian people has also been exploited.

Substitutes

A threat of substitutes would be the Illegal Marijuana Markets because if the prices are better

there then customers would hesitate to get products from Canopy Growth. To stop that from

being a big threat, Canopy Growth needs to make sure it’s products are great quality especially

more then the illegal products, also having unique products that only Canopy Growth can

produce, will make it harder for customers to find an alternative.

Porter Five Forces for Canopy was Growth

CONCLUSION

With the strong political support for legalized cannabis usage in Canada, and the continued

efforts to increase legalization in the U.S., Canopy growth has major potential to maintain their

industry advantage. As the industry continues to grow, there will be higher demand for

marijuana and other cannabis products. Economically, it makes sense for them to increase their

efforts to maintain their sympathetic pricing model so that they are competitive with black

market distributors and satisfy government regulations. Biotechnology will be necessary for

companies to keep up with rapid changes. Intellectual Property will also be a growing concern as

new players continue to be attracted to the industry. As this can start becoming a commodity, this

will be a huge risk for cannabis companies. Additionally, higher demand in this new and

evolving industry will require FDA understanding and steeper regulation.

 

REFERENCES 1. https://www.digitaltrends.com/home/marijuana-tech-for-home/

2. https://finance.yahoo.com/news/tech-solve-cannabis-industry-biggest-233000787.html

3. https://www.investopedia.com/articles/investing/111015/future-marijuana-industry-ameri

ca.asp

4. https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis.html

5. https://amp.dw.com/en/canadas-cannabis-industry-just-beginning-to-bud/a-49824389

6. https://www.canada.ca/en/health-canada/services/cannabis-regulations-licensed-producer

s/import-export.html

7. https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/producing-s

elling-hemp/about-hemp-canada-hemp-industry/statistics-reports-fact-sheets-hemp.html

8. https://globalnews.ca/news/4581623/excessive-cannabis-packaging/

9. https://www.heritage.org/index/country/canada

10. https://vancouversun.com/cannabis/cannabis-culture/cannabis-trends/cannabis-consumpti

on-on-the-rise-in-canada-since-legalization-study

11. https://ocannabiz.com/archives/24589

12. https://globalnews.ca/news/5403579/cannabis-taxes-brought-in-186-million-in-five-and-a

-half-months/