Southwestern Ontario cannabis firm hits $90M jackpot, even as many rivals fail

AYLMER – Mario Naric outlined his vision to make his cannabis extraction company an industry leader while touring its yet-to-be-built headquarters in a former tobacco plant here five years ago.

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Canada had legalized recreational cannabis less than a year before and pot firms were racing to dominate the emerging industry projected to be worth billions of dollars a year.

Many companies, most publicly traded, spent huge sums boosting growing capacity, building massive greenhouses or buying farmland for outdoor cultivation, while others chased market share by buying competitors, often at sky-high prices. Some of these firms saw their valuations soar with every news release or media report about a planned expansion, partnership with an overseas company or introduction of a new product line.

But Motif Labs, the company Naric founded with Ian Hasse, took a different approach, keeping the company private, staying out of the pot-growing game and focusing on profits over publicity.

Those efforts paid off as Motif grew into Canada’s largest privately held cannabis company, with the top-selling vape brand and more than 250 employees.

The once-empty space at the Elgin Innovation Center in Aylmer, licensed in 2020, has morphed into a state-of-the-art extraction and research facility. And Motif opened a 7,000-square-meter (more than 75,000-square-foot) London distribution center last year.

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Motif may have kept a low profile, but its success didn’t go unnoticed.

Organigram, a licensed producer headquartered in Moncton, NB, announced this month it had bought Motif for $90 million. The cash-and-stock deal makes Organigram Canada’s largest pot company by market share, at 12.5 per cent, surpassing Tilray.

In his first interview since the sale was announced, Naric said Motif’s road to success was pretty straightforward after pivoting from his original plan to make cannabis extract products for other companies.

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“We enjoy product development. We put out a few product lines. They were a hit, so that gave us the confidence to really lean into it. It was just something I personally wanted to do with the business,” the former chief executive said of Motif creating its own branded products.

“We transformed into a brand house and we distributed our products nationally and succeeded in all the categories that we were in.”

Extraction experts wanted

Paola De Luca, Organigram’s chief marketer, said Motif’s “deep expertise in extraction” is a core competitive advantage in the cannabis industry.

“Not only are they efficient and do large volumes, they also have the ability to extract multiple cannabinoids,” such as THC – pot’s main psychoactive component – and CBD, or cannibidiol, he said. “That breadth of capability and also the efficiency is a key strategic advantage.”

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In addition to its indoor growing operation in Moncton, Organigram manufactures edibles in Winnipeg and has a greenhouse in Lac-Supérieur, Que., with a combined workforce of about 1,200.

Now, with the purchase of Motif, Organigram has better access to Ontario’s $2-billion cannabis market. Motif’s south London warehouse is on Highway 401, about 100 kilometers from the Guelph distribution center of the Ontario Cannabis Store, the province’s pot wholesaler.

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“It’s logistically also very sound for us to have a presence where Motif is located,” De Luca said.

Organigram has ambitious international aspirations – the company invested $21 million in a German cannabis company this year – and already exports medicinal marijuana to Australia, Germany, the UK and Israel.

“Our mission is to be a global champion out of Canada and to be the leader,” De Luca said.

Boom to bust in Southwestern Ontario

There were high hopes that Canada legalizing recreational pot in 2018 – the second country in the world to do so – would bring a boom to Southwestern Ontario, a region still hurting since the manufacturing industry decline of the early 2000s.

And for a while, it did.

The region’s proximity to 400-series highways, abundant, affordable commercial space and greenhouses, large labor pool and some of the country’s best farming conditions helped it carve out a niche as Canada’s cannabis belt.

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Pot firms raced to build out their operations in response to a countrywide supply shortage and anticipated global demand.

More than a dozen cannabis producers had Southwestern Ontario operations – from greenhouses and indoor growing facilities to processing plants and farms – with the sector employing nearly 2,500 people at its peak.

But that number has dropped significantly over the years as companies have scaled back or closed, laid off staff and, in some cases, filed for creditor protection.

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“This industry is not easy,” Naric said, adding too many pot firms focused on gaining market share and other speculative metrics that didn’t pay off in the long run.

Naric, a chemical engineer by training and now Organigram’s businesses development vice-president, credits Motif’s success to hiring the right people, having supportive shareholders and focusing on fundamentals.

“You have to do the math,” he said. “You can’t launch a product that doesn’t make you money.”

Retail rollout finally ending?

It would be easy to believe the cannabis industry is booming, given how many retail stores have popped up across Ontario in recent years. In some mid- and large-sized cities, it’s not uncommon to find multiple pot shops on the same block, even across the street from each other.

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There are now about 1,750 brick-and-mortar pot shops in Ontario, not counting the dozens of black market dispensaries still operating in defiance of the law.

But the number of licensed pot shops appears to have peaked, said Michael Armstrong, a professor at Brock University’s Goodman business school who studies the cannabis industry.

“Retail went through a major growth spurt that ended in summer 2022,” he said. “The total really hasn’t changed over the last 12 months, either in Ontario or nationally. The ones that come in have been matched by the ones coming out.”

About one-fifth of the more than 2,220 cannabis retail stores opened since April 2019 have closed, Armstrong said, noting that’s not unusual for small businesses.

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Cannabis sales also appear to have plateaued, hitting a monthly high of $450 million in June 2023 and hovering near that mark since, according to Statistics Canada.

“A lot of the sales growth was directly correlated with store growth,” Armstrong said. “Where we’re at now is probably what the Canadian cannabis sector is in terms of total sales.”

Armstrong predicts some remaining retailers have hung on in hopes of finally becoming profitable, but will close when that doesn’t happen.

“Then we’re going to decrease to a point where your average retailer is now finally profitable,” he said.

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