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What a difference eight months has made for 48North Cannabis (NRTH.V). The small Toronto-based licensed producer on Monday announced plans to close its outdoor cannabis operation, citing a “nationwide excess of supply.” The move follows comments from the company’s chief executive officer last July downplaying the glut, even as it slashed its expected selling price.
Shares of 48North Cannabis sank 20 per cent on Monday, after it announced a series of operational changes. The company said it will immediately shut its 100-acre outdoor organic cultivation facility near Hamilton, Ont. It also plans to cut its workforce by about 20 per cent, but did not specify how many workers would be affected.
Two senior leaders are also leaving the company, including its chief financial officer Sean Byrne, who started the job earlier this month.
"This was a difficult decision,” CEO Charles Vennat says of the changes, in a news release.
Speaking to Yahoo Finance Canada in July, Vennat expressed optimism that quality outdoor supply would be a hit in Canada’s legal market, with far lower production costs than indoor-grown pot. The company will now rely on strategic partnerships with other licensed producers, and its indoor facility in Kirkland Lake, Ont.
48North previously said its 2019 crop brought in 12,000 kilograms at a total cash cost per gram of $0.25. However, the company had unsold inventory from that year’s harvest still on its books when it planted outdoors again in 2020. It cut the expected selling price from $1 per gram to $0.50 per gram, resulting in a negative fair-market adjustment of $5.4 million when it reported financial results in May.
According to Health Canada, the number of acres licensed for outdoor cultivation surged as producers continued to amass large stockpiles of unsold pot.
Craig Wiggins, managing director of the research firm TheCannalysts, has long warned Canadian licensed producers were growing too much. He has likened the situation to water spilling over the sides of an overfilled bathtub.
“We have been waiting for news of sales of the 2020 outdoor harvest from a number of players,” he told Yahoo Finance Canada on Monday. “The pending harvest always seems to have C-suites far more vocal than what happened to post harvest.”
Vennat had disagreed about the oversupply issue in July, suggesting the situation is more nuanced.
“Oversupply is relative. An oversupply of what? People paint cannabis with a wide brush. The reality is, much like grapes for wine, there are many different grades. What we are really trying to do is get the best quality off the field,” he told Yahoo Finance Canada at the time.
"I’d be a lot more nervous if I was a greenhouse grower than an outdoor grower."
48North's Toronto-listed stock fell 20 per cent to $0.16 as at 12:53 p.m. ET.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.