05.01.2017
policy

3 Cannabis Industry Leaders Tell Us What Canadian Legalization Really Means

We spoke with various members of Canada's weed space to see how the news is being received.

Earlier this month, Canadian Prime Minister Justin Trudeau proposed legislation to legalize the recreational use, possession, and cultivation of marijuana for anyone over the age of 18. And once Trudeau’s liberal government establishes a regulatory framework, the retail sale of rec weed in the Great White North will also be legal. For normalization advocates, the news should be seen as progress. And for anyone hoping to earn a living in the Canadian marijuana industry, legalization is a fever dream coming into fruition. 

Indeed, there is some real money to be made on legal marijuana.

For example, Canopy Growth, a vertically integrated Canadian cannabis startup-turned-conglomerate, said to be the “largest marijuana producer on the planet” and which holds office space in an old Hershey Chocolate factory, sold 1,696,440 grams of weed in 2016. The company earned a reported $896 million in 2016 alone. Canopy expects this number to reach $22.6 billion in Trudeau’s post-legalization Canada.

To glean insight into how members of the Canadian industry are reacting to Trudeau’s plan, KINDLAND reached out to various brands in the space, some of which have received funding by the above-mentioned Canopy Growth.

KINDLAND: What does the legalization news mean for the consumer?

Jake Crow, CEO and Co-Founder of BudTendr, a mobile application which facilitates orders for dispensaries and their customers in Canada: Unfortunately, for the Canadian recreational consumer, the legislation wasn't made to serve them. The legislation was specifically made to protect youth and to stop the flow of cash into the hands of criminals. The consumer, especially during the first few years of the recreational market, will have limited channels of legal access to get their cannabis. That will directly lead to long retail lines and frustrating experiences for new and return consumers.

Rob Fess, Director of Marketing at Tradiv, an online marketplace where cannabis producers and retailers can efficiently and compliantly conduct transitions: Ultimately and thanks to regulation, consumers can expect higher quality, safer products for less, both on the medical and recreational sides. When cultivating cannabis was underground, the sharing of knowledge on growing techniques, best practices, and what was healthy and what wasn’t was extremely limited. Now, learnings across the entire industry can be shared out in the open. The advances that will come from this exchange of information can only benefit consumers.    

Instead of opening a bottle of wine, they’ll smoke up, or a try a different strain. That’s becoming part of the social lifestyle.

Bjorn Dawson, CEO and Co-Founder of Grobo, a startup that develops a product to empower home growers to raise their own cannabis and other small fruits and vegetables: You talk to people that tell you about dinner parties where instead of opening a bottle of wine, they’ll smoke up, or a try a different strain. That’s becoming part of the social lifestyle. On the East Coast, we’re not seeing that as much––areas such as Toronto, Ottawa, Montreal––they’re enforcing the laws quite a bit more strictly. We’re not seeing that [social] shift yet, but people are pushing for it. Once legalization comes through, we’ll begin to see more of these shifts throughout the rest of Canada. A lot of the licensed producers here are working on exporting deals, and deals outside of Canada. 

KINDLAND: What specific changes will the industry see immediately? What do you think will take some time?

Jake Crow/BudTendr: The biggest changes that the industry will see are the diminishing of youth access to cannabis as well as the elimination of the black market. The government of Canada will need to take their time in order to roll out a properly effective federal system without gaping holes. Also, the industry demand is going to continue to skyrocket and will be met by limited legal channels of access. The increase in demand and limited access to retail is going to be a frustrating reality for recreational consumers. It will certainly take a lot of time to bring on many of the ancillary services, which are currently operating in the legal U.S. markets. For example, delivery hasn't been mentioned by the government and will remain illegal.

 Hammering out all the laws and regulations will take some time before everything settles in.

Rob Fess/Tradiv: Hammering out all the laws and regulations will take some time before everything settles in. You can expect back and forth on zoning, permits, advertising rules, etc. for a few years before it becomes a smoothly operating industry. Also, due in most part to supply and demand, it will take some time before wholesale and retail prices normalize. There will be an initial grab by current industry participants for market share. That is, the current flower, edibles, and extract leaders will try to stay on top and expand their businesses. They will quickly need to realize that bringing help from outside of the industry is one of the best ways to ensure that those who built the cannabis industry get to keep some of it. Because, it’s just a matter of time before mainstream industries recognize the opportunity and come in with resources that dwarf current leaders.

KINDLAND: Is Canada ready for legal weed?

Jake Crow/BudTendr: Canada is absolutely ready for legal cannabis and has been for many years. Canada is going to continue to demonstrate the international standard for implementing and regulating a federally legal cannabis market. It's certainly an exciting time to be a Canadian cannabis entrepreneur in the legal ancillary market.

Rob Fess/Tradiv: Canada is definitely ready for legal weed. In many ways, Canada has been at the forefront of the cannabis experiment and this is yet another example of how Canadians have led the way for the people of this planet to be allowed to enjoy this wonderful plant without fear of prosecution.

Bjorn Dawson/Grobo: Everybody is talking about the [up to] 14-year sentencing for dealing to children, and that is sort of the hot topic. On our side, we really look at home-growing. We’ll see what happens with individual provinces having a little bit more power in deciding how that is put in place and enforced. I’ve been watching, and am interested in, landlords coming out and landlord associations trying to stop home-growing.

KINDLAND: What does this news mean for your business model?

Rob Fess/Tradiv: Tradiv originally launched in Colorado in 2015. This was a market with fairly solid regulation. Next, we entered California in 2016. This was a highly-unregulated market that was a legal and logistical quagmire. With these learnings, we have come to prefer tidy, well-regulated markets. And Canada looks to be one of those places where our value propositions––compliance, efficiency, and transparency––would certainly appeal to the industry.

There is a whole new generation of products that people aren’t considering.

Bjorn Dawson/Grobo: We’re interested in how we can fit into the system, and make sure that the regulations are fair. There is a whole new generation of products that people aren’t considering, that does fit into the home-growing [rules.] We still think there is some work that we have to do to make sure that people recognize what home-growing actually looks like today.

KINDLAND: How do you see the proposal for recreational use affecting the economics of wholesale cannabis in Canada?

Rob Fess/Tradiv: We would expect the economics of wholesale cannabis in Canada to follow a similar path as Colorado. That is, there will be an initial rise in demand as a flood of new retail consumers enter the space. Wholesale and retail prices will rise. Many of the current cultivators will increase their canopy size. At the same time, new growers will join in the production. Then, as supply reaches and eventually exceeds demand, wholesale prices will begin to fall and correct. Growers should be cautious not to base their businesses on the margins they’ll see at the beginnings of the recreational market.

KINDLAND: Do you see this news as slowing investment in the medical marijuana space, but picking up in recreational? Or are the two sectors separate beasts entirely?

Rob Fess/Tradiv: Initially, there would be a slowdown in the medical marijuana space as there is some crossover in the medical and recreational consumer groups. However, the medicinal value of the plant is undeniable and the need by patients is constant. We still see a strong medical wholesale business in Colorado years after recreational consumption became legal. A few elements that differentiate medical from recreational are dosages for edibles (medical dosages are much higher, often 10x that of rec), taxes (often medical is tax exempt), and the types of strains (often medical strains are cultivated for the CBD and CBN percentages more so than their psychoactive THC properties).

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