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U.S. Cannabusinesses Watch And Wait While Canada’s Country-Wide Adult-Use Structure Gets Tweaked

In mid-April, Canadian lawmakers put forth cannabis legislation that would legalize adult use of cannabis on July 1, 2018, one of the campaign pledges of Prime Minister Justin Trudeau in 2015, which will make Canada just the second country that would legalize adult-use marijuana across the entire country (Uruguay did it in 2014).

The country already legalized medical marijuana in 2001.

The cannabis act legislation will make the industry federally regulated, so what will govern the cannabis business is a federal statute, according to Len Glickman, a lawyer in the Toronto office of Canadian law firm Cassels Brock, and a partner in the firm’s business law group.

The provinces are going to be involved on a province by province basis about deciding their distribution platform, which to date has been a mail order distribution scheme. “The provinces have to decide if cannabis product is going to be distributed through independent third party retailers or through liquor stores or through pharmacies,” Glickman says. “Each province may have a different sort of combination of distribution platforms. So that is going to make it interesting.”

According to a Nanos Research poll of 1,000 adult Canadians conducted for CTV News, Canadians seem split on where marijuana should be sold. While 29 percent say “it doesn’t make any difference … as long as there are rules and regulations that control access,” an almost equal number agree that it should be sold only in provincially-owned government outlets (25 per cent) as the number who want it sold in non-government stores, like pharmacies and specialty shops (26 per cent). The rest say it should remain illegal or are unsure.

That adult use legislation is “going through some readings” as it would in the U.S., according to Glickman. “I think that we are not going to see drafted regulations until Parliament is back in session in the early fall,” he says. “But then there is going to be a legislative and regulatory consulting process.”

What’s at stake here is billions and billions of dollars in a fully regulated adult-use, medical cannabis market – quite an attraction to many U.S.-based cannabis companies who are tiring of fighting the uncertainty in this country, worried about the life of their investment, and eying the opportunities coming into view in our neighbors to the north. But there are some obstacles.

“The first obstacle that U.S. businesses are facing is that the Toronto Stock Exchange (TSX) is not willing to help companies that have U.S. operations in the cannabis sector,” Jon Sherman, an associate in the business law group working in securities at the Cassels Brock law firm, says. “But having said that, the Canadian Securities Exchange (CSE) has become the go-to market for some of the cannabis businesses both here in Canada and in the U.S.,” he says. “So many that, someone joked, it should be renamed the Cannabis Securities Exchange. Our capital markets are totally clearing a new path forward in this industry.”

There’s already a handful of cannabis companies who have made huge deals in the Canadian market, and there are currently 52 (29 in the province of Ontario alone) that have already been issued grow licenses to serve the medical marijuana industry.

Canopy Growth, a medical cannabis grower with four Canadian grow licenses, has a market cap of $1.5 billion and recently signed a deal with Mettrum Health that gives it access to thousands of Canadian cannabis patients. “There are LPs that are licensed to sell medical cannabis right now who are on a parallel track of gearing up for when adult-use comes online,” Glickman says. “So it’s not like they have to start from zero.”

Sherman says that Canada is being watched by the U.S. and other countries because the country is ahead of the game. “We are ahead in terms of our regulatory framework, and in terms of the structure that the federal government has put into place. And people are looking to us to lead.”

Part of that lead is in the import and export possibilities for cannabis, which is in their current medical market program and is also in the draft legislation for adult-use. Countries like Germany and Australia both allow import of cannabis to meet the demand of patients until they can get their local grows up and running.

Tilray Canada became the first Canadian cannabis company to legally export a medically cannabis extract. “That export capability provides us with pretty substantial opportunities which you just can’t do in the U.S.,” Sherman says.

Canada is learning from the U.S. as well, Sherman says. “With respect to the actual operations of the business, I think there is significant difference between product requirements in both countries,” he says. Edibles, he says, are not currently contemplated under Canada’s draft legislation. “But there is some indication that that will be looked at in the future. And we are seeing a lot of companies, mostly in the U.S., discussing the possibility of joint ventures on extraction techniques and future edible products.”

If edibles are eventually allowed in Canada’s adult-use market, they will be under tighter compliance controls. One of the surprises that some Canadian cannabis business people experienced recently was in Colorado, Sherman says. “There were a number of people who went to dispensaries in Colorado and they were quite surprised by what the state of Colorado actually let into the product, because the regulations up here in Canada are so much more stringent on testing and product quality and pesticide use,” he says. “We are going to keep our eye on things in the U.S. and make sure that our edibles market doesn’t come online with any significant issues that lead to public policy concerns over the legalization of marijuana.”

The product shortfall in Nevada was one of the other lessons learned from the U.S. cannabis market for Canada’s cannabis businesses. “We are seeing an expansion in the number of licenses that are issued here,” Glickman says. “And they are getting a little bit of an allowance for licensed producers to expand or modify their facilities, because we saw what happened in Nevada with the shortages of product. Health Canada is concerned that if we are truly going to get rid of the black market, we are going to have to have producers that can service the coming demand in the adult-use market.”

David Hodes

David Hodes

David Hodes is based in the greater Washington DC metropolitan area. He is the former editor of seven different business magazines, and has contributed feature articles to several business/lifestyle publications and national cannabis magazines. Hodes is also a former field producer for CBS News, NBC, NFL Network, ESPN and other media outlets; worked as a news promotions producer for two network affiliates; and was the morning news editor for a third network affiliate.

He is member of the National Press Club, and deputy booking agent for the National Press Club Headliners Committee.

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