(This is the first in a two-part series about Canada’s medical cannabis exports. Part 2 will explore where those exports are going.)
Amid declining medical cannabis sales in Canada’s domestic market and cutthroat competition in the adult-use industry, some licensed producers are increasingly looking to overseas markets for a financial lifeline.
Exports continued to surge in the 2022-23 fiscal year, with Canada shipping medical cannabis products worth 160 million Canadian dollars ($118 million) overseas, a 50% increase over 2021-22’s CA$107 million, according to figures shared by Health Canada with MJBizDaily.
David Hyde, CEO of Hyde Advisory & Investments in Toronto, believes Canada will have a leg up over competing export countries for a few more years.
“For the next two or three years, at least, we’re going to see continually increasing medical numbers (exports),” he said in a phone interview.
The brisk export growth comes as domestic sales of medical cannabis continue to contract.
Canadian domestic sales from April 1, 2022, to March 31, 2023, were CA$401 million, which was 9% lower than the previous year and 20% lower than the same period two years earlier, when medical cannabis sales were CA$501 million.
When medical exports are combined with domestic sales, Canada’s medical cannabis industry was worth just over CA$560 million last year – still the largest federally regulated medical marijuana industry in the world.
Will exports pivot from flower?
Health Canada did not share a breakdown of the value of flower exports versus extract exports, but flower is thought to command a majority of international sales.
But for how much longer?
Hyde said so-called Cannabis 2.0 products such as vapes and hash could help drive exports.
“I think there’s going to be a healthy export market in Canada for years to come," he said.
"It’ll pivot from flower, gradually, to other product forms.
“At the same time, cultivators in those (importing) countries will slowly start to dial in their production, and Canada won’t have a captured market forever.”
Hyde noted Canada’s domestic industry is still dealing with a product glut, and the bottom dropped out of the market for business-to-business wholesale cannabis.
“So, what are your options? It’ll cost you CA$1.50 per gram to produce it, and you can’t sell it in Canada for more than that. So you’ve got to look at export,” he said.
Hyde also said more U.S. multistate operators are dipping their toes in the global market, and a lot of them are doing it through Canada - although New York-based Curaleaf Holdings has secured a toehold in Europe via the 2021 purchase of Emmac Life Science and a July acquisition of a processing facility in Portugal.
“They can go direct like Curaleaf. But many of the MSOs in the U.S., rather than navigating those tricky global markets, they partner with an LP in Canada, many of whom are desperate for cash,” he said.
“I’m seeing more and more of that - all those exports are through the Canadian license holder.
“In my mind, we’ll see more partnerships between MSOs and LPs, because there’s such a healthy export channel, their brands and IP.”
Craft driving exports?
Some industry insiders say higher-quality cannabis is helping drive exports higher, and that is increasingly coming from small-batch cultivation.
This comes as more Canadian cannabis entrepreneurs are turning to smaller micro-cultivation facilities at a time when the industry is facing a glut of “standard” product and falling prices.
As of March 2023, Canada had 423 micro-class licenses, which are typically associated with craft production because of their 200-square-meter growing limit.
At the same time, there were 568 standard licenses.
That's a big change from two years earlier, when there were 426 standard licenses and 179 micro licenses.
Phil Campbell - the CEO of Herbal Dispatch, a marijuana marketplace that addresses the medical, recreational and export markets - helps facilitate international shipments of medical cannabis.
“There’s a lot of mass-produced greenhouse product by large, licensed producers, but some of the best product available is from craft producers, who don’t have a viable path to export unless they work with a company like ourselves,” he said in a phone interview.
Campbell said there’s complexity in getting import and export permits issued and establishing relationships with foreign regulators and vendors.
Such hurdles can be especially acute for small businesses.
“The global export market is very competitive. There are a lot of low-cost countries that are fighting for the international market,” Campbell said.
Deepak Anand, principal of ASDA Consultancy Services in Surrey, British Columbia, suggested craft production has been increasingly finding its way to international markets.
"A lot of the crafts and micros, because their licenses are only cultivation and not processing, they don't have the ability to export cannabis," Anand said in a phone interview.
"So they are now basically connecting with companies like Herbal Dispatch, as an example (to help facilitate those exports).
"That's the future, because a lot of people don't want product from big companies, whereas the craft guys have great products but they don't have the certification.”
Matt Lamers can be reached at firstname.lastname@example.org.