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SMITHS FALLS, Ontario -- When Canada became the first major industrialized nation to legalize recreational marijuana, visions of billions of dollars in profits inspired growers, retailers and investors, sending the stock market soaring in a so-called green rush.

A year later, the euphoria has vanished.

"No one wants to invest in it now," said John-Kurt Pliniussen, a professor of marketing at the Smith School of Business at Queen's University in Kingston, Ontario.

That is because those who have invested have generally lost money. During the first year after legalization, the value of shares in Canada's six largest marijuana companies tumbled by an average of 56%, according to stock price data.

The marijuana companies said a turnaround is only a matter of time, hoping a big step along the way will come today, when marijuana-laced drinks and foods are to arrive on the legal market.

But the problems that plagued the first year remain.

One is that the provincial governments in Ontario and Quebec, whose residents account for about two-thirds of Canada's population, have opened or licensed legal pot shops at a glacial pace -- despite a clear demand. Potential customers are still underserved with just 24 legal marijuana shops for Ontario's 17.5 million residents. So, many are still buying on the black market.

And freed from taxation, the black market is generally cheaper across the country.

Another problem, many in the industry said, is that the elaborate regulatory structure for legal cannabis has been an impediment to sales. Canada's regulations were designed only to decriminalize marijuana use, not necessarily encourage it. The result is a system that mimics the country's approach to tobacco and largely blocks marketing and advertising.

"This last year has been very painful," said Eric Kirzner, a professor emeritus of finance at the University of Toronto's Rotman School of Management, who compared the fate of marijuana stocks to earlier technology share crashes. "Marijuana is hardly the technology industry, but to me the stories are similar in the sense that we had all kinds of hype."

Pliniussen doesn't see the opening of the market to edibles as a turning point.

"I expect this to be just like slow ripples on a pond as opposed to a tsunami of excitement," he said. "What we have now is what we're going to have; this is it."

A major problem for growers generally is that it's still not easy for many Canadians to legally buy marijuana, particularly in Ontario.

Not long before legalization, a Conservative government took power in the province and swiftly canceled a plan by the Liberal government it replaced to sell through government-owned stores.

But Michael Amlung, a professor of psychiatry at McMaster University in Hamilton, Ontario, who studies marijuana use, said research showed that Canadians overwhelmingly preferred buying marijuana in stores.

"Online they can't actually see the product," Amlung said. "They can't smell the product -- a lot of those things that are part of purchasing cannabis."

On Thursday, Ontario announced that it was lifting its limits on store licenses and will issue about 20 licenses monthly starting in March 2020.

Surveys by Statistics Canada have found that only 28% of cannabis buyers meet all of their marijuana needs through legal sources.

In Ottawa, population 1 million, Mimi Lam, a former investment banker, owns one of three legal shops in the national capital.

Strict marketing restrictions mean that passers-by can't see into her store, Superette. But once customers pass through an ID check to prove that they are at least 19, they enter a shop that's a pastiche of a 1950s diner.

Unlike many people in Canada's marijuana trade, Lam is making money, although not as much as she had hoped. She said that for the industry to really succeed, the government needed to loosen regulations.

A Section on 12/16/2019

Print Headline: Canadian investors pan pot after year 1

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