Federally, cannabis legalization saw daylight in Canada in 2018. The Cannabis Act legalized recreational marijuana in October 2018. Now, the country is all set for the second wave of legalization, Cannabis 2.0, which includes cannabis edibles, cannabis-infused beverages, extracts, and various other products. Let’s dig into this more.
Canada’s second wave of legalization
Next month, Canada will legalize cannabis-infused edibles for recreational use. The Canadian market will see a limited selection of products in retail outlets and online stores after the legalization, but not earlier than mid-December.
Canada legalized medical and recreational marijuana. However, the country has been very careful to ensure that public health safety is also taken into account. Keeping in mind how the edibles market could attract young people, Health Canada implemented a strict legal framework for cannabis. The amendments to Canada’s regulations in June will ensure legal production and sale of edible cannabis, cannabis extracts, and cannabis topicals.
How big can the edibles market get?
Canada’s edibles market will likely grow immensely. Based on Deloitte’s estimates in its recent research report, “Nurturing new growth,” the Canadian market for edibles and alternative cannabis products could reach 2.7 billion Canadian dollars annually. There will be various cannabis edibles including gummies, cookies, brownies, and chocolates. The Deloitte survey showed consumers’ preferences for various upcoming edible products.
Why regulations are important
Gummies look like the favorite choice in edibles. However, Health Canada will be careful with product labels and marketing. Since gummies are a popular product among children and youth, officials want to ensure that marketing strategies don’t influence them.
Health Canada ensured that there are stricter regulations and guideline for the products. Notably, Health Canada released a new set of guidelines on June 14 for edible cannabis, cannabis extracts, and cannabis topicals. The regulations include marijuana and industrial hemp regulations.
The cannabis regulations include:
- licenses for research, cultivation, and sale of cannabis
- permits for imports and exports
- simple packaging with strict instructions for the logo, color, and branding
- product labels with mandatory health warnings and specific information about the product
The industrial hemp regulations state that hemp cultivators should only grow the varieties approved for commercial cultivation. Hemp is different from cannabis due to the THC content. Hemp is cannabis that contains 0.3% or less of THC (tetrahydrocannabinol) in the flowering heads and leaves.
What are the players aiming for?
Canadian marijuana players have already gained popularity among US investors. Now, the companies’ expansion plans into the edibles market will draw more attention.
In July, Aurora Cannabis (ACB) announced that it received a license from Health Canada for its Aurora Air facility. The facility will produce edible products, like gummies and chocolate, for consumers starting in December. During the last earnings call, the company mentioned how Aurora Polaris will focus on producing edibles like hard baked goods, chocolates, mints, and infused beverages. We’ll have more updates on Aurora Cannabis’s edibles business in its upcoming fourth-quarter earnings results. The company should release its fourth-quarter results on Thursday. The stock has gained 9.2% in September.
In Canopy Growth’s (CGC) (WEED) earnings call for the first quarter of 2020, the company mentioned how it plans to produce high-quality beverages and edible products starting in the third quarter of 2020. Along with Constellation Brands (STZ), Canopy Growth plans to introduce multiple cannabis beverage products into the market. There will also be many chocolate products. The company plans to introduce a variety of CBD products including beverages, edibles, and oils later this fiscal year. The stock has gained 15.4% in September.
OrganiGram (OGI) also plans to produce about 4 million kilograms of exceptional chocolate cannabis edibles per year. The company plans to invest $15 million in the production line. The stock has gained 11.8% in September. Stay with us to learn more about how companies prepare their edibles business plan for Cannabis 2.0.
The Horizons Marijuana Life Sciences Index ETF (HMMJ), which tracks the North America cannabis industry, has risen 4.4% in September. Although HMMJ fell in August, it has gained 2.9% YTD.
Canada’s cannabis industry
What fascinates me about Canada’s approach to legalization is its model. The Canadian government made efforts to pass legislation. Notably, legalization controls marijuana use and sales even though it’s legalized. By allowing marijuana to be sold only by government-licensed retailers and grown only by licensed producers, Canada can keep illicit activities in check. Illicit activities are a major concern in the cannabis industry.
Recently, I discussed how California is on the path to become marijuana’s biggest black market. Read Marijuana Policy: Can California Shape It for the US? to learn more.
More black market sales would impact cannabis companies with exposure to the California market. A Forbes article in March discussed how higher taxes, opposition from local officials, and clumsy regulations are making the black market popular. Also, getting a license, renewing licenses annually, and other operating costs make dealing with legal cannabis expensive.
However, the legalized market’s popularity also urged many cannabis companies to set up operations in California. Cresco Labs, a Canada-based cannabis player, marked itself in California by acquiring Origin House. MedMen (MMNFF) and Curaleaf (CURLF) have also invested in California’s market.
Lower taxes on marijuana in Canada kept the black market in check. However, data also revealed that supply issues have increased black market sales in Canada.
I think that the US can pick up some of these points if and when it decides to legalize marijuana at the federal level. In the US, marijuana state markets struggle with black market sales. Higher taxes have made the legal market competitive. As a result, a lot of consumers are drawn towards the black market—in contrast to the case in California.
Changes in the US marijuana industry
We have discussed how regulations are critical in the cannabis industry. Federal legalization will keep all of the illicit activities and black market sales in check. Notably, federal legalization prevents cannabis players from getting swallowed up in regulation scandals. The government can also take advantage of tax revenues, which are currently going to the state. However, to prioritize marijuana legalization, the Trump administration thinks that it needs to know more about marijuana. Currently, the decision is made at the state level.
Canada is ready to capitalize on the cannabis industry. Cannabis has spread its roots globally as well. What will be the US decide regarding marijuana legalization? Stay with us for the latest updates.