Canada’s recreational marijuana market expected to help, not hurt, US businesses

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By Omar Sacirbey

Marijuana business owners and investors in the United States aren’t viewing Canada’s looming legalization of recreational marijuana as a potential competitive threat.

Rather, they see it as an opportunity to further grow the U.S. cannabis industry.

“Anything that moves the conversation forward in terms of legalization is a broad positive,” said Hadley Ford, managing partner of iAnthus Capital, a New York-based cannabis investment and operations company that is publicly traded in Canada.

When Canada’s rec marijuana industry goes online in July 2018, it should have little, if any, negative influence on the U.S. retail market, though cannabis research north of the border is likely to remain ahead of American efforts, U.S. industry officials said.

On the other hand, they said, Canada’s legalization will buoy financial, political and social confidence in regulated cannabis markets as a whole. That, in turn, could bolster the U.S. industry and direct more investment money toward cannabis businesses south of the border.

“Overall, it’s only going to have a positive impact,” said Aaron Nelson, director of actualization at 2020 Solutions, a rec store in Bellingham, Washington, about 11 miles from the Canadian border.

Cannabis no battleground

Nelson’s store gets some Canadian customers throughout the year, and he doesn’t expect his northern visitors’ numbers to decline after recreational cannabis becomes available across the border.

Why? The overwhelming majority of those Canadians don’t visit Washington state strictly to buy cannabis, Nelson said. They buy cannabis the same way they purchase food, beverages and any other provisions they need during such a trip.

“I don’t think Canadian tourists come to Washington just for cannabis,” he said. “They come to spend a weekend and they buy cannabis while they’re here.”

Nelson pointed out that most Canadian tourists hail from British Columbia, where cannabis is plentiful and easy to obtain on the black market or from dozens of unlicensed dispensaries across the province.

Shy Sadis, who owns three store brands in Bellingham, agreed.

“Now that (marijuana’s) recreational, it’s still going to be easy to get,” Sadis said. “Canada legalizing is not going to affect Bellingham at all.

“They’re still going to want to come over on vacation and get their weed.”

New investment interest?

Financial market observers believe that rec legalization across the border may help level the playing field between the United States and Canada, where public markets have already lavished cannabis companies with money and high valuations.

More likely, the observers said, the rollout and eventual launch of Canada’s legal rec market will boost investor confidence in the cannabis sector as a whole – and that could benefit U.S. marijuana companies.

“From a U.S. perspective, from our perspective in particular, the investment community will have even more interest in cannabis and us, and it’ll make capital more available, and that should drive down the cost of that capital,” said Ford of iAnthus Capital. “There’s not a finite amount of capital that’s being divvied up between Canadian and U.S. opportunities. What you have is a very small amount of capital which has invested in cannabis.”

In other words, Canada’s move won’t be taking investment money away from its southern neighbors, Ford said. It most likely will be expanding investor attention in the United States.

“From a capital formation perspective, anything that raises the awareness of the cannabis sector – and full rec gets everyone’s attention – that’s a good thing,” Ford said. “In Canada, that’s going to bring in more investors, which should drive more stock volume and probably even better valuations in the Canadian market.

“That, in return, should have a spillover effect in the United States. As more people look to invest, they’re going to look around the Canadian market and say, ‘Wow, there’s this market just south of here that is multiples bigger and has fewer public companies in which we can invest.’”

Morgan Paxhia, a marijuana-focused investor in San Francisco, agrees with Ford that Canada’s rec legalization will have an important psychological effect on investors – helping them feel more comfortable with the U.S. market in general.

“Canada is a bullish symbol of where legalization is going to help investors feel more comfortable with cannabis,” said Paxhia, a managing director at Poseidon Asset Management. “It’s good for confidence.”

He believes U.S. companies seeking investor money will benefit from declining investor interest in the Canadian cannabis investment sector, mainly because opportunities are mostly limited to 38 federally licensed producers (LPs).

“There’s LP fatigue,” Paxhia said, explaining that investors drawn to diverse markets have become “tired of” Canada’s licensed producers because they and ancillary companies are the only investment opportunities in that country.

Meanwhile, for all its risks, he said, the U.S. marijuana sector offers a greater array of companies in which to invest, including cultivators, retailers, infused products and concentrates companies.

Behind in research

One area in which observers believe Canada’s cannabis sector will surpass the United States’ is research and technology.

Licensed producers in Canada are partnering with the nation’s universities on growing techniques and therapeutic applications of cannabis.

ABcann Global in Ontario, for example, is working with the University of Guelph – whose advisory board includes nationally known health professionals – on cultivation technologies that one day could lead to growing cannabis in space. Recreational legalization will accelerate such research, observers said.

“We’ve been successful because we’re a research-driven company,” said ABcann’s founder, Ken Clement.

Meanwhile, U.S. research will likely continue to stagnate.

“(Canada’s rec legalization is) great for the industry, because many innovations will have a chance to develop,” Nelson said. Of course, he pointed out, that means Canadian companies will get a jump on doing the innovating and, thus, reaping the profits.

Omar Sacirbey can be reached at [email protected]

One comment on “Canada’s recreational marijuana market expected to help, not hurt, US businesses
  1. Rasha Kor on

    It will most likely skew ownership towards canadian firms. The canadian LPs are right now awashed with money because they are the only game in town as publicly offered equities. With rec passing in Canada they with secure even more money to shop whatever operations they desire in the USA.

    Reply

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