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Cannabis Canada: The Next Wave

Dave Jackson Dave Jackson, Stockhouse
0 Comments| 5 days ago

It’s been nearly a year since federal adult-use cannabis legalization came to Canada. The Cannabis Act legalized recreational marijuana in October 2018. Now, the country is full peddle to metal for the second wave of legalization – Cannabis 2.0 – which will soon include cannabis edibles, cannabis-infused beverages, extracts, and various other products. Let’s take a deep dive into what’s ahead for cannabis consumers and investors.
When Bill C-45: The Cannabis Act passed, the federal government was careful to ensure that public health safety was of paramount importance. Bearing 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 this past June will ensure legal production and sale of edible cannabis, cannabis extracts, and cannabis topicals.

So just how big can the pot edibles market get?

Canada’s edibles market will likely grow enormously. 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 dollars annually. There will be various cannabis edibles including gummies, cookies, brownies, and chocolates. The Deloitte survey also demonstrated in detail consumer preferences for various upcoming edible products.

What are the cannabis companies targeting?

Canadian cannabis players have gained popularity among US investors. Now, the various companies’ expansion plans into the edibles market will draw more attention.
In July, Edmonton-based mega-player Aurora Cannabis (T.ACB) announced that it had received a license from Health Canada for its Aurora Air facility. The facility will produce edible products – like gummies and chocolate – for consumers starting this 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. The stock has gained 9.2 percent in September.

In Canopy Growth’s (T.WEED) earnings call for the Q1 2020, the company reported how it plans to produce high-quality beverages and edible products starting in the third quarter of 2020. Along with Constellation Brands (STZ), TWEED plans to introduce multiple cannabis beverage products into the market, along with “many chocolate products.” The company plans to introduce a variety of CBD products including beverages, edibles, and oils later this fiscal year.
Organigram Holdings Inc. (T.OGI, OTC:OGI, Forum) 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 Horizons Marijuana Life Sciences Index ETF (T.HMMJ.U), which tracks the North America cannabis industry, has risen 4.4 percent in September. Although HMMJ fell in August, it has gained 2.9 percent year to date.

Canada’s Cannabis Industry

By allowing marijuana to be sold only by government-licensed retailers and grown only by licensed producers, Canada can keep black market activities in check. Illicit activities are a major concern in the cannabis industry.
More black market sales would impact cannabis companies with exposure to the California market, for example. A Forbes article in March reported how higher taxes, opposition from local officials, and inept 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 (C.CL), a Canadian-based major cannabis player, demonstrated itself in California by acquiring Origin House in a massive US$1.1B purchase in April.
Lower taxes on cannabis in Canada kept the black market in check. However, data also revealed that supply issues have increased black market sales in Canada.
In the US, at a state level, marijuana markets struggle with black market sales. The legal market isn’t competitive due to higher taxes. As a result, many consumers are drawn towards the black market, which is evident in other states as well besides California.

Changes in the US Cannabis Industry

Regulations are critical in the cannabis industry. Federal legalization was designed to keep illicit activities and black market sales in check, while noting it is unlikely to completely eradicate small-time operators. Notably, legalization prevents cannabis players from getting swallowed up in regulation scandals. Federal and provincial governments can also take advantage of new tax revenues that can go back into the system to fund much needed health and public works initiatives.
Canada is ready to capitalize on Cannabis 2.0. Cannabis has spread its roots globally as well. What will be the remaining 33 US decide regarding cannabis legalization? Stay with us at Stockhouse for all of the latest updates.
FULL DISCLOSURE: Organigram Holdings Inc. is a client of Stockhouse Publishing. 

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