1. Calculate total contribution margin and contribution rate for the company’s third quarter of 2019 operations.

2. Calculate the company’s fixed cost.

3. What is the selling price of one gram of cannabis in this operation?

4. How many kilograms and kilogram equivalent of cannabis the company must sell to break even?

After a lengthy process, the legalization of recreational marijuana in Canada came into effect when Bill C-45 was passed by the Senate and received royal assent from the Governor General. Bill C-45, known as the Cannabis Act, became law and came into force on October 17, 2018. With the passage of this law, Canada became the second country in the world that has legalized recreational marijuana. Uruguay was the first country to legalize marijuana in December 2013.

The newness of the cannabis industry in Canada raises a number of concerns in the country. There are concerns from the medical community, law enforcement, and corporate Canada that need to be studied and investigated. 

The medical community is concerned about health-related issues that might affect cannabis users. Based on the Cannabis Act, the minimum legal age for the use of marijuana is 19. The medical community is concerned because the brain continues to develop until the age of 25 and cannabis will have adverse effects on brain development if young people use cannabis. 

The law-enforcement community believes that it does not have the resources necessary to deal with legalized marijuana. For example, they question the testing equipment and its effectiveness for testing drivers who drive under the influence of marijuana. They also believe that legalization positively affects the tourism industry and people will come to Canada from anywhere in the world searching for legal consumption of marijuana. In addition, they believe that the public is not prepared and lacks training and education that should be provided by the government.

Corporate Canada, on the other hand, is very bullish about the industry and believes that the legalization of cannabis brings huge opportunity to Canada, making it possible for Canada to become a world leader in cannabis production. The players in this industry are concerned that the minimum age requirement will leave a big portion of the market in the hands of the illegal market. According to the Statistics Canada estimates,1 4.9 million Canadians older than 15 years consumed cannabis in 2017, and 6 percent of them were 15 to 17 years old.

One of the Canadian players in the cannabis industry is Canopy Growth Corp. “The company, through its subsidiaries, is the licensed producer of medical marijuana in Canada. It grows, produces and sells medical marijuana under various brand names including Tweed, Bedrocan, and Mettrum”.2 In the third quarter of its 2019 fiscal year,3 the company reported sales revenue of $83.05 million. Total cost of sales for the quarter was $64.8 million. The company’s operating expenses for the quarter were $169.7 million, including sales and marketing expenses, general and administrative expenses, and research and development expenses. The company sold 10 102 kilograms and kilogram equivalent of dry cannabis. At the end of the quarter, the company reported a net loss of $75.1 million for the quarter.