As reported in our October 2018 newsletter, Canada became the second country after Uruguay to legalize cannabis last fall. The Cannabis industry in Canada is projected to reach $5 billion USD by 2020 with exciting trends emerging in 2019!
DEMAND EXCEEDS LEGAL SUPPLY
Cannabis growers in the USA and elsewhere will want to know that at present, cannabis suppliers in Canada are unable to meet market demand. The supply shortage is expected to continue into 2019. The New York Times reported, as early as three weeks into Cannabis legalization, that Canada was running low on legal product, sending some consumers back to the illegal black market – undermining a major aim of legalization. One reason may be the backlog of approval by the Federal government for licenses to cannabis producers. Another reason is that producers did not accurately predict high demand; as a result, provincial cannabis stores in New Brunswick and Quebec had to temporarily close or shutter their stores in late 2018.
Demand was evidently difficult to predict in an industry that faced almost a century-long criminal prohibition. Scaling up a national legal supply chain for cannabis, with no roadmap, has been challenging for producers as well. Strong price points have also disappointed some consumers but the strict government regulation and quality control of legal Canadian cannabis ensures it is free from contaminants found in black market product.
The shortage provides a unique and timely opportunity for investors in the USA to open their doors as Canadian operators or find strategic partners in Canada (already licensed) that they can assist. Funds currently “on hold” in the USA, which has cannabis still illegal in so many states and federally, can be invested strategically in Canada (at a gain given the currency difference!). In fact, we believe that those US companies that turn to Canada while the USA still decides what it will do with cannabis will be one step ahead of the game. They can return to the USA once legalization occurs here, transferring knowledge and talent gained in Canada to their US facilities. It’s a win-win, with a timeliness factor not to be missed.
DISTRIBUTION REGULATED AT THE PROVINCIAL/TERRITORIAL LEVEL
Although cannabis is federally legal in Canada, each province controls the distribution of cannabis giving rise to mosaic of different laws. The provinces and territories set rules around how cannabis can be sold, where stores may be located, and how stores must be operated. In addition, provinces have the flexibility to add restrictions including: lowering possession limits; increasing the minimum age; restricting where cannabis may be used in public; and setting added requirements on personal cultivation.
Regulation on the municipal and provincial level in Canada creates inefficiency and red-tape for international investors looking to take advantage of current opportunities. An illustrative example is the provincial regulation and distribution schemes for alcohol (including private, public and private-public mixes) in Canada that held up the EU-Canada Comprehensive Economic and Trade Agreement (CETA) for years. Knowledge of how to properly set up shop in Canada is thus essential.
PROVINCIAL LAWS AT A GLANCE (outline as of October 17, 2018):
The public possession limit for all provinces and territories is 30 grams. Consumption in vehicles is also banned in all provinces.
WHAT TO LOOK OUT FOR IN 2019
The legalization of edible sales in Canada should occur sometime before October 17, 2019, exactly one year after recreational cannabis was generally legalized. Another trend to watch out for is the expansion of concentrates which were also limited by the Cannabis Act back in 2018. Intriguing opportunities are emerging with collaborations between the cannabis industry and the drinks sector. Now is the time to invest!
With regard to international opportunities in Cannabis, Israel is the leading country. Although recreational cannabis use is yet to be legalized in Israel, medicinal cannabis is legal, with the U.S. News and World Report referring to Israel as “The Holy Land of medical marijuana.” Green Entrepreneur named Israel the global leader in Cannabis research, a feat 50 years in the making. Earlier this week, “Breath of Life International,” Israel’s largest medical cannabis producer filed a preliminary prospectus with the Toronto Stock Exchange (TSX). CKR Law LLP has an Israel & Middle East practice group to help clients navigate the legalities of the international cannabis market.
Our Canadian Law Group assists companies in the U.S.A. to expand to Canada, including determining the best location to relocate, incorporate and/or merge with Canadian strategic partnerships in mind. For more information regarding the Canadian legal or international cannabis market, please contact: firstname.lastname@example.org