How Companies in Canada are Preparing for Federal Legalization

Cannabis in Canada is becoming legalized July 2018

The launch recreational cannabis sales in Canada is set for July 2018. This watershed enactment of cannabis legislation will make the Maple Leaf the second country in the world to legalize cannabis at the national level. While over half of the states that comprise the USA have legalized cannabis for medical or recreational use, it still remains prohibited at the federal level. This likely isn’t going to remain true for long given the massive amount of support legal cannabis has accrued from constituents nation-wide. So let’s take a look at how our northern neighbors got to legalization, and how they are preparing to meet market demand. We might be able to learn a thing or two.

Timeline to Legality

In 1923, Canadian lawmakers banned cannabis at the national level for reasons that aren’t entirely clear. The rates of cannabis use in the nation were negligible, so it wasn’t a response to a widespread zeal for ganja. However, the international community—especially the United States—was already making moves to prohibit all forms of the plant, including hemp, the non-psychoactive, industrial variation of cannabis historically used for things like paper, clothing, and livestock nutrition.

It wasn’t until pressure from the United States in the 1930’s that law enforcement actually attempted to enforce cannabis laws. However, it wasn’t nearly as intense of a crackdown as what cannabis users experienced in the US. Law enforcement was flexible, and, again, people weren’t really using pot.

Cannabis consumption became widespread in Canada during the 1960’s, likely as a result of the psychedelic culture of that era. In 1962, there were only 20 reported cases of illegal cannabis activity in the country. By 1972, that number had skyrocketed to almost 12,000. As in the United States, the rise of cannabis use in prohibitionist Canada has resulted in the entanglement of millions of lives in the Canadian criminal justice system in the last several decades.

In 2000, the Ontario Court of Appeal ruled in favor of Terrance Parker, a man who illegally used cannabis to medicate his severe epilepsy, declaring that Canada’s cannabis ban infringed upon Parker’s constitutional right to “life, liberty, and security.”

In 2001, largely as a result of the monumental court decision, the medical use of cannabis was legalized at the national level. Patients were granted the right to grow their own cannabis or access it through a licensed producer.

Justin Trudeau was elected Prime Minister in 2015In 2015, Justin Trudeau was elected Prime Minister of Canada. A major part of his campaign was the promise to “legalize, regulate, and restrict access to marijuana.”

On April 13, 2017, the Cannabis Act was introduced to Canadian Parliament. The Canadian government has stated that it plans to launch recreational sales by July 2018.

Business Mergers 

In late January, Canada’s second largest cannabis producer, Aurora Cannabis, agreed to a merger with CanniMed Therapeutics, a former rival grower. The $852 million deal is the largest of its kind in the cannabis industry to date. Aurora gains the patients registered with CanniMed, and those patients get streamlined access to the e-commerce platform Aurora provides. CanniMed wants to maintain its relevance once recreational sales launch, and Aurora is wise to invest in the medicinal side of the business. The consolidation puts the entity in an excellent position to meet what it looks like will be the massive domestic demand once sales go live in July.  It also prepares the entity to meet international demand as nation after nation replaces cannabis prohibition with regulation.

Just days after the Aurora-CanniMed deal, growing company Aphria agreed to a $669 million deal to buy Nuuvera, a company specializing in cannabis processing. The companies stated that the merger would “unlock greater economic value from future production, including expectations of realizing supply chain efficiencies, cross-selling and upselling to customers through a broader product portfolio, developing a more diverse customer base, integrating operations and controls and implementing best practices.” That potential isn’t limited to Canada—since Canada will be the only G7 country with legal cannabis, it becomes by default the front-runner for international partnerships in nations with nascent cannabis regulation like Germany and Italy.

If everything plays out as it should, the demand for cannabis products is going to be explosive come July. If Canadian cannabis producers weren’t making massive (often expensive) changes, they wouldn’t be prepared to handle it. In fact, some companies are losing money as they prepare to supply their nation with legal weed. Bruce Linton, CEO of Canopy, the number one cannabis stock, explained his company’s $1 million in losses in an interview with consultancy Ernst and Young.

“You’re spending four times as much as you would normally in order to be ready for a year from now,” Linton said.

Big Canna

Big Canna may be a new coined termThese kinds of consolidations are excellent news for the massive brands behind them. Money attracts money, and these multi-million dollar mergers are hard to look over. Additionally, consolidating businesses removes competition, that, in some cases, would prove to be more of a nuisance than a real threat to bigger brands. And the smaller brands that get bought out can at least enjoy the spoils of a war that is profitable for all sides. Large stocks like Aurora and Aphria can buy smaller stocks that, once the legal industry in Canada is in full swing, will be worth a heck of a lot more than they are now. However, this business strategy creates a playing field that is far more advantageous for what we might soon be calling “Big Canna.”

The competition for small cannabis growers and processors is going to be much fiercer than it has been in the United States, where the cannabis industry remains disjointed and stymied by federal prohibition. One of the few advantages to a state-led legal cannabis industry in a country with a national ban is that smaller businesses have a real competitive shot. At least, for now. If Canada’s preparation for national recreational cannabis sales shows us anything, it’s that the future of the cannabis industry is going to be a lot larger than mom and pop stores and gardens.


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