Where are some of the biggest business opportunities in medical marijuana? Look to the north.
Canada has embarked on a historic, ambitious move to open up its medical marijuana program to the free market, giving rise to a massive industry that could eventually top $1 billion and count half a million patients as customers. The country’s new program will create companies with tens of millions of dollars – and perhaps hundreds of millions – in revenues. And the industry won’t face most of the legal risks associated with growing and selling marijuana in the United States. In fact, Canada could become the model other countries (perhaps even the US) eventually use to craft their own national medical cannabis programs.
MMJ Business Daily spoke with Scott Walker – co-founder and CEO of Nature’s Own RX, which is seeking a license to grow and sell medical cannabis – about the new program and the related business opportunities for local and international companies.
How will the shift to a free market structure affect existing compassion clubs, growers and related businesses?
It’s a very dramatic change. There are no more licenses being issued by Health Canada for personal grows. All licenses currently out there will cease to exist on April 14 of next year. That will affect the 25,600 people licensed to grow their own marijuana at home now.
As far as the businesses associated with this industry, designated growers who cultivate for up to two patients each – there are thousands of those – will have to stop business as of April 1. At that time they must destroy all plant material. In terms of compassion clubs, they are basically all out of business. They have been there servicing the unlicensed marketplace, and they were somewhat tolerated depending on the jurisdiction they operated in. But there will be no storefronts whatsoever with this new program, and they are not going to be tolerated any longer in my opinion.
There are also a number of hydroponic stores focused on the home-grow market. They are certainly going to be affected by this change and could lose business. But there are major opportunities for them as well to target the commercial grows. So you can look at is as glass half empty or glass half full.
How big will the market be under the new program?
The government predicts a $1.3 billion industry in 10 years, but our company believes it’s closer to $2.6 billion by 2016. The reason for that from our perspective is that patients will have a much easier and simpler way to get their license to possess medical marijuana. They won’t need multiple interactions with doctors and they won’t have to fill out multiple forms with Health Canada. It’s like getting a regular prescription, filled out by doctors who basically state how many grams per day the client is allowed.
It’s a very different model than in the US. It’s a national program, so our company can sell to anybody in any province across the country, and it’s up to us to get customers. We can grow as much as we want, serve as many patients as we want and we can also buy and aggregate strains.
So it sounds like some huge companies could materialize. Will we see interest from mainstream businesses?
I think so. Some of these businesses will make millions in revenues and trade on the stock market. We’ll probably see household corporate names enter the industry, either now or down the road. They might wait on the sidelines for a while and watch how this evolves. But they will get involved in my opinion. And whether the government is correct with its estimate or I am correct with mine, this is going to be a very big business, at least a billion-dollar industry.
How would you gauge the interest level so far?
A large number of people are already getting in. Some are planning very large operations and some are more conservative with their growth strategy. Already 156 firms have applied for producer and distributor status since June, with the first two receiving licenses just last week.
The largest one that has been announced is going to operate in a huge former Hershey chocolate factory in Ontario. It’s a 480,000-square-foot facility. We on the other hand are starting conservative at about 7,000 square feet and hope to grow out to 35,000 feet within the first 12 months. We are not of the mindset that if you build it they will come. This is a business that requires a very aggressive and detailed customer acquisition strategy.
What opportunities are there for international businesses?
We’re certainly seeing players from offshore coming in, especially from the Netherlands but also from the US.
In terms of opportunities, I look at it like the gold rush. Who really made the money, the guys panning for gold or the people who sold them equipment to do so? I wouldn’t get into the business (on the growing/distribution side) if I didn’t think I could make a very significant return. But this is a very sophisticated model for growing and servicing and supplying clients and there are plenty of opportunities on that end, specifically for lights suppliers, nutrients suppliers, tissue culturing, etc.
To start a grow operation, you have to be a registered business in this country and pass all the same criteria as any other business. And, as a licensed producer, you also have the right to import and export. This is really more of an international market.
Under the new system, licensed grow operations will also distribute the cannabis directly to patients. How is that going to work?
The overall intent of this new program is to have growers be an integrated business, where they not only grow marijuana but also package it, handle quality control, acquire customers – being the patients – and distribute it directly to them.
Basically they”ll offer a secure delivery service, directly to a patient’s home or office or also to their health care provider, which can be their doctor or a nurse practitioner who is able to write prescriptions. The only other distribution point is hospital dispensaries for their patients – growers can sell it and deliver it directly to them. There’s a special program with the postal service for distribution, and there are programs with two courier companies that include full tracking all the way through.
What are the biggest challenges involved?
For growers, it’s like going from a corner french fry stand to a major national distributor of french fries. There’s a big difference in the business model. Business planning and financing (are also hurdles). Traditional financing via major chartered banks is not available at this point, and accurately forecasting the size and scope of the market…and projecting production requirements and timelines is very difficult.
Give us an idea of average startup costs for a grower/distributor under this program.
We’re not talking about small grows in a house. We’re talking about big operations, so it will cost millions of dollars to get started. In some cases smaller growers are even banding together to create a new businesses.
What impact will the change have on prices?
You would think that prices would go down. Medical marijuana available under the old program from a licensed producer was $5 a gram. Now, they are saying it will cost $9 to $12 a gram. But we believe our target sale price is $6, and we have a business model built around that price point.
What will determine which businesses thrive and which ones fail?
The financial capacity to operate for the first 12- 24 months as the market stabilizes; consistently providing an adequate number of quality strains to meet customer needs; and marketing, customer acquisition, ongoing support and retention.
What are the other benefits of this new program?
This really is positive for the industry. First of all, the government recognizes this as a new industrial sector. Also, we’re going to get a far better product in terms of quality, there will be better controls and safer medicines. The ancillary side of the business will see an increase in research and development and there will be major advances in the use of marijuana as a medicine and the overall science behind it.