Canadian election results may spawn big marijuana business opportunities north of the border

By John Schroyer

This week will likely go down as a historic one for Canada’s marijuana industry.

The surprise election of Justin Trudeau as prime minister – coupled with the Liberal Party’s takeover of Parliament – could lead to a new wave of business opportunities for cannabis companies both in Canada and the United States.

Trudeau promised repeatedly on the campaign trail to legalize recreational marijuana if he was elected, and his Liberal Party now has a clear avenue to make good on that promise.

Canada, therefore, appears poised to become the second country in the world after Uruguay to fully legalize marijuana – which would create a new market with the potential for billions of dollars in annual revenues.

Legalization – which is far from certain – would spawn scores of new businesses, perhaps even creating opportunities for American companies looking to expand internationally. The market would explode from roughly 28,000 patients currently registered with the country’s medical cannabis program to possibly any adult who wants to purchase marijuana, including tourists from around the world.

It also could serve as a lifeline to some existing medical marijuana producers that are scrambling to adapt to a lower-than-expected patient count and competition from illegal dispensaries in the western part of the country.

“I’ve never paid such close attention to an election taking place outside the United States,” said Brendan Kennedy, the CEO of Seattle-based Privateer Holdings. Kennedy’s private equity firm owns Tilray, one of the 26 licensed medical cannabis producers in Canada. “I kept hitting refresh on my phone and my computer (Monday night), and I was listening to Canadian Broadcasting Company all night.”

Legalization at the federal level would also eliminate many of the risks and hurdles cannabis businesses face in the United States, making the Canadian market even more attractive.

Alongside the wave of optimism for those in the marijuana trade in Canada, there’s also a host of questions as to what form legalization may take.

Some of the most pressing:

  • Will Trudeau allow MMJ dispensaries that are technically illegal to continue operating and let them sell recreational cannabis? Or will only the licensed producers – many of which spent hundreds of thousands, if not millions, of dollars to obtain their permits – be the only legal retailers?
  • Will storefronts be allowed, or will consumers have to order their purchases via mail, as MMJ patients currently do?
  • Will the federal government issue more licenses for companies wishing to get into the industry, and will foreign companies or investors be allowed to get involved?

Arguably one of the biggest questions is whether private companies will even be allowed to sell rec, said PharmaCan Capital CEO Paul Rosen, an investor in Canadian MMJ companies.

Rosen pointed out that in Ontario, where he lives, all liquor stores are owned and run by the government.

“It’s not a total free market,” Rosen said. “Trudeau’s messaging on this was pretty tight, in that he unequivocally signaled that it would be a priority for the liberals to legalize marijuana, but he never got granular about whether we would have regulated dispensaries, and about whether it might be more of a government-run monopoly or sold through pharmacies.”

Trudeau did drop some hints as to his intentions a few weeks ago on the campaign trail, but emphasized that he doesn’t have a blueprint yet in place for legalization. He even said it may take “a year or two to kick in,” but promised to begin working on legalization “right away.”

“(Liberals) avoided giving any kind of detail, and when pressed on it, would say, ‘We’re going to study and figure out how to create the best regulated framework,’” Rosen said. “There’s a great deal of unknown.”

It’s not even clear how quickly legalization or other cannabis reforms may come about. While some think that the Canadian Parliament will have to pass an amendment to the Controlled Drug and Substances Act, Toronto attorney Andrea Hill said there are multiple ways Trudeau could go about it, each with varying ramifications for businesses.

“It could be as simple as updating some of the defined terms in the regulations that already exist,” Hill said. “Any further amendments to those regulations can be done at the minister’s discretion, which means it could be very fast. No debate process, no committee review, none of this.”

Yet another option, she said, would be to update the Controlled Drug and Substances Act to simply remove the word “cannabis” from the language.

That, however, would mean that regulation would then be left to the provinces, and essentially set up a similar system to the United States, in which rules for the industry vary greatly from state to state. That could also be done within a matter of just a few months, instead of taking a year or more to craft a federally regulated system.

If that happens, Hill predicted, several conservative provinces would likely at the very least take a harsh regulatory stance toward recreational marijuana businesses, while more progressive areas – such as British Columbia – would take full advantage of the new business opportunities and tax revenue.

Hill and Rosen both agreed, however, that one of the things most likely to happen is that the 26 producers so far licensed by Health Canada would almost certainly get first crack at recreational sales, in the same way that Colorado gave existing MMJ dispensaries the option of selling rec before phasing in more retailers and growers. (Trudeau’s campaign also said that it was looking at Colorado as a possible regulatory model.)

“Whatever their fortunes were yesterday, they’re brighter today,” Rosen said of the licensed producers.

Hill also thinks there’s good reason to believe Trudeau will move quickly on the issue.

“They’re riding a high of public opinion, no pun intended, and if they make this change soon, they can turn around in a year and say, ‘Look at all our tax revenue. Isn’t this wonderful? Look at all the industry growth and jobs we helped create,’” Hill said.

Kennedy, however, said what he would hope to see is the federal Canadian government give dispensaries a shot as well. If that doesn’t happen, it could lead to the perpetuation of the black market, or at the very least an ongoing fight between cities such as Vancouver and the federal government.

“He’s said that he wants to have a more inclusive government, so I take him at his word,” Kennedy said.

Rosen suggested that the federal government could allow individual shops to sell rec, but require them to purchase their inventory from licensed producers to ensure quality and safety.

John Schroyer can be reached at [email protected]

One comment on “Canadian election results may spawn big marijuana business opportunities north of the border
  1. Michael Mayes on

    John,

    Great article, I think Canada is ready for a big shake up. Lots of applicants have crawled through glass to get to this point. It would be nice if all the current applicants in the medical program would also be considered for recreational. By allowing these highly qualified applicants participation, it would allow the applicants that have been waiting patiently, and have already spent millions, turn a profit on their investments.

    -Michael Mayes
    Chief Executive officer
    Cannabis Consultant
    Quantum 9, Inc.
    http://www.quantum9.net

    Reply

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