🔒 Canada’s cannabis industry lessons – smoking hot, but full of stumbles

LONDON — The South African Constitutional Court ruling in September 2018 on the decriminalisation of marijuana for personal use has increased pressure on the government to change its policy on the cannabis industry. In his Budget speech in February 2019, Finance Minister Tito Mboweni acknowledged that there is a need for a shift in policy so that it can become a potential source of revenue. But he is passing that joint… sorry he said ball to the leadership of the ANC to come up with a policy. It is hard not to use clichés with this one. And where legalisation falls, businesses move in to see whether they can make money from new opportunities. With the shift in mood in South Africa, a host of industries are poised to take advantage as can be seen at a series of Cannabis Expos all over the country. There is no doubt that many countries are moving towards some form of legalisation of marijuana. In the United Kingdom, one of the magic circle law firms, Allen & Overy now has a cannabis legal team. Canada, which legalised recreational and medicinal cannabis in October last year is seen to be the country that is paving the way for the cannabis industry. But as Craig Wiggins explained to Bloomberg’s Joe Weisenthal the industry has been besieged by problems. – Linda van Tilburg

I think there is a multitude of problems and we have no shortage of people pointing fingers at each other. In Canada we have two distinct streams with respect to cannabis. We have the medical cannabis and we have the adult rack. The medical cannabis is all done online and shipped directly from a LP (licence producer), whose licensed by Health Canada, direct to patient. Or Shoppers Drug Mart, Canada’s largest drugstore chain, has gotten involved in distribution of cannabis but not from the retail stores. Again, it’s all online.

The recreational side, each Province in Canada is responsible for recreational distribution. Most of them, I think nine out of the 10 major Provinces all elected to be the wholesaler of cannabis and some of them elected to also be the retailer of cannabis and each Province is difference so, we really have a patchwork of different models throughout Canada and what we’ve really seen is the theme that we’ve heard from the Provinces, who are strapped for inventory, so much so that the Quebec Government, who is actually running their own retail stores, have closed their retails stores Monday through Wednesday because there’s not enough product.

New Brunswick is a similar situation. Alberta stopped issuing new retail licenses and Alberta – it is private distribution, even though the government sees the need that they have to receive the product before distributing it to the retail. So, it’s really been a Patrick and most of those Provinces have not done a very good job of their retail rollout, whether it’s private or government run.

That’s just what I was about to ask. Of the two main-models, neither one is looking particularly good right now?

Yeah, and that’s where some of the finger pointing comes in. A lot of the Provinces said the LPs over promised and under delivered and there is a lot of over promising going on. The term ‘funded capacity’ was bandied about greatly in the industry because of the stock price.

Just to be clear, when you say, ‘the LPs.’ These are the producers, the Licensed Producers whose names investors have come to know, like cannabis growth in Africa?

Yeah, they’re cultivators. They’re primary cultivators but yes, the LPs are the ones that are producing, cultivating, and then shipping the product whether it is medical or whether it is adult rec. Same growers feeding two different streams.

Also read: WORLDVIEW: Will 2018 be the Year of Marijuana?

So, if there’s a shortage of supply and the LPs haven’t been able to deliver on what they’ve promised. Does that, in your view, speak to some fundamental problem or is this just like, look there’re still growing pains, they didn’t appreciate the scope of the demand for it, but in a few quarters, and a few years as they continue to build out their growth facilities that stabilise?

Yes and no – the quality that’s coming out. There’re only two form factors that are presently allowed in Canada. One is flower-bud, and the other is oil and its oil that has been provided in a diluted carrier oil, like MCT or olive oil or something like that. So, there’s only presently, two legal form factors in Canada. The bud side of the equation – there is some pretty scraggly looking flowers that’s getting delivered to customers. That are used to, if they’re from the black market or what we’ve been calling lately, the legacy market, is not nearly as good.

How much is just growing pains, demand strain on the system versus maybe they’re not that good at growing at scale or maybe there’s going to be some issue that’s going to permanently be an issue with growing at scale? Like, how much of this do you expect to be solved over the coming years?

Well, I think a lot of it gets solved through genetics. You have to remember, cannabis has been grown in small scale in Canada indoor simply because you had to hide it. So, going to these mass greenhouses the genetics are going to take a while to dial in. The genetics have to come along to be able to grow in a different, less controlled environment than an indoor shop.

What’s the actual number for how many publicly traded cannabis companies there are in Canada?

Wow, publicly traded I’ve got to think it’s north of 50. I think there’s 140 or 150 licenses. We are seeing some of them do well in the first quarter because the wholesale market is still surprisingly strong.

What is the future of the medical side now that someone can just go onto a dispensary without a prescription or anything like that?

Well, actually for a lot of the bigger companies so far, their medical actually either stayed relatively stable, a little uptick or a little downtick. So, we’re through our first reporting quarter a full rack, which was October, November, and December, and here’s the crazy thing in Canada. On the medical side our government is charging an excise tax on medical cannabis, and I think this is a very lazy way of approaching. They’re seeing it, well, if you want to game the system, and you want to pay less well, you’ll go onto medical. But what they’ve tried to do is even the playing field and throw in excise tax on it. These excise stamps, which are about a half-inch wide by an inch-long are by Province and every producer, every licence producer who ships it out has to put on one all these disperse packages, from pouches, tubes, bottles, boxes and they didn’t get the excise-stamps until about two weeks before recreation kicked off, and there is no glue on them. That is just not efficient but because all the packaging is different and these stamps have to affixed and have to stay affixed after opening – mind you, torn. It’s a silly procedure in this day and again, in my mind. But the government wants their share, and the excise-stamps go on, and it’s very Colonial British, I think.

What kind of taxation revenue are they seeing? Are they happy with it?

Between the Federal and the Provincial taxes – I think they’re taking 40% to 50% of the net purchase price in taxes, in one form or another, whether it’s sales tax, excise tax, or what have you.

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