Canadian Cannabis: Planning for Adult-Use Sales

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Lawmakers and licensed producers are quickly approaching the July 2018 recreational start date.

August 30, 2017

Photo by Blue Rose Designs

With less than a year until the legalization of recreational cannabis in Canada, legislators and producers are quickly ramping up to prepare for the July 1, 2018, adult-use sales date. From finding supply to creating marketing policies, here’s how Canada is preparing:

Little Supply, Big Demand

According to a report from Canaccord Genuity Group, there will be about 3.8 million legal recreational marijuana consumers across Canada by 2021. On top of that, Health Canada reports nearly 130,000 Canadians were registered to use medical marijuana in March, double what that number looked like a year ago.

Current licensed producers (LPs) are trying to expand as quickly as possible to meet the expected increase in demand, but even the added production could fall short. Additionally, new businesses aren’t getting into the industry fast enough, according to Cam Battley, executive vice-president of Aurora Cannabis Inc. He says the existing capacity won’t be sufficient to meet the needs of consumers.

“We need to expand our capacity right away simply to meet the demands of the rapidly growing medical cannabis system,” Battley said in a recent CBC News report. “When the demand of the adult consumer system is layered on top of that, it’s a rush to build as much capacity as possible.”

Jordan Sinclair, director of communications for Canopy Growth Corp., another major medical cannabis producer, agrees with Battley, saying the demand for cannabis isn’t slowing down, but he says businesses are working to increase production.

“It does seem like now the pace is speeding up with other companies following in our footsteps [to expand, and] it signals that there is credibility across the sector,” Sinclair told CBC News.

Producers Piling On

Canopy Growth Corp.’s efforts to expand have been notable. The company has seen major financial losses recently, but CEO Bruce Linton says those are due to increased expenses to prepare for the July 2018 legalization. The company quadrupled its first-quarter losses compared to the same period last year, according to the Financial Post, and it reported a $21.1-million loss in the three months ending March 31.

“Everything we were doing and are doing is to make sure we are where we want to be for the beginning of 2018,” Linton told the Financial Post.

At least several other LPs have, in fact, started expanding their businesses as well, to meet the demand. The Hydropothecary Corporation, for example, plans to add onto its production facility in Gatineau, Québec, after closing on a $25.1-million deal.

“With this new financing, we will deliver a licensed and operational 300,000-square-foot platform for both medical and adult-use marijuana products in 2018,” Sébastien St-Louis, co-founder and CEO, said in a press release.

Also, several partnerships have formed to prepare for the changing market. Among those are Aphria Inc.’s wholesale supply agreement with HydRx Farms, Ltd. (Scientus Pharma) in which Aphria is committing to supply more than 25,000 fully grown medical cannabis plants over the next year to the biopharmaceutical firm.

“Through this agreement, Scientus Pharma will get access to clean and safe cannabis, which is necessary in the biopharmaceutical cannabis industry,” Vic Neufeld, CEO of Aphria, said in a press release. “In return, Aphria will benefit from guaranteed product distribution advancing Aphria’s growth strategy.”

Additionally, Aurora Cannabis and Cann Group Ltd. entered into a technical services agreement that would facilitate an exchange of support across areas, including medical cannabis cultivation and processing, the companies announced in a press release.

Building Businesses

Despite the challenges current LPs are facing, several new LPs have popped up looking to get in on the action come next summer. In Weedon, a small town in Quebec’s Eastern Townships, medical cannabis producer MYM Nutraceuticals partnered with Montreal-based Canna Canada to build 15 100,000-square-foot greenhouses for cannabis production. According to CBC News, the project is expected to cost $200 million. The mayor and people of Weedon hope the business will help the town and its economy grow.

“One day this could make Weedon known across the world,” Mayor Richard Tanguay said in a recent CBC News report.

Other licensed-producer hopefuls are following suit. PUF Ventures Inc., a biomedical Access to Cannabis for Medical Purposes Regulations (ACMPR) applicant with a production facility located in London, Ontario, should have its final upgrades just about finished (at press time) in order to receive its license issuance from Health Canada, according to a recent news release.

True Leaf Medicine is also in the final stages of becoming an LP of medical cannabis under the ACMPR. “It’s been a long process,” CEO Darcy Bomford said in a prepared statement. “But True Leaf’s team fully understands the importance of getting it right and ensuring that security and quality are paramount.”

The Distribution Debates

To make sure the recreational-legalization process is safe and smooth, provinces are working to decide how the product should be distributed. While there won’t be a countrywide structure, some city officials in Alberta seem to be leaning toward following a model similar to how liquor stores run in the province: as private enterprises. However, that idea has received pushback from certain municipalities.

A report by city staff in Calgary suggests that a system similar to liquor stores’ would work well with the current regulatory framework, but the city would need more provincial or federal sales taxes on the product to offset the burden of overseeing the industry, according to The Globe and Mail.

Additionally, fewer than a quarter of people who participated in a 2016 poll in Ontario said they would want a system where marijuana is sold at Liquor Control Board of Ontario locations across the province, according to the Oshawa Express.

Selling through pharmacies was one option brought to the table. Other ideas included privatizing the industry, selling cannabis through a Crown corporation, which is a corporation owned by federal or provincial organizations and structured like a private or independent company. Liquor stores are Crown corporations in certain provinces such as Ontario, Quebec and some Maritime provinces, and, despite the debate, public officials still seem to think regulation would be the easiest through Crown corporations and a liquor store model.

“It is the best way to ensure that the public health and safety of all the citizens of New Brunswick is prioritized and protected,” Denis Brun, coordinator for the union representing NB Liquor employees, told CBC News.

Marketing Marijuana

As legalization approaches, questions of how medical cannabis can be marketed and advertised have arisen. Current policy says medical cannabis, like tobacco products, cannot be marketed or promoted. However, with recreational cannabis on the horizon, and what some say is among the federal government’s biggest objectives—eliminating the black market—many LPs believe marketing is necessary.

“To achieve that objective, it’s vital that we bring market forces to bear, and allow legal companies to compete with the black market through adult-focused branding and promotion consistent with Canadian alcohol guidelines,” Battley told Canadian Business, which reported that 16 of Canada’s LPs have banded together to develop guidelines on how medical marijuana should be branded and promoted before recreational legalization.

Despite the challenges the country is facing with finding the right policies and laws, Prime Minister Justin Trudeau says he’s committed to the July 1, 2018, deadline.

“We need to put an end to this policy [of prohibition] that does not work,” Trudeau said in a Globe and Mail report. “We are continuing to work with the provinces to make sure the framework will be in place as soon as possible.”