eResearch | On June 14, 2019, the Government of Canada announced amendments to the Cannabis Act, which was initially released in October 2018 and covered the legalization of dried and fresh cannabis, cannabis oils, cannabis plants, and cannabis seeds. This amendment focuses on peripheral cannabis products, currently illegal for sale in Canada, such as edibles, extracts, and topicals.
According to Deloitte’s updated Cannabis Report 2.0, the Canadian market for edibles and alternative cannabis products is estimated to be C$2.7 billion annually. The variety of cannabis derivatives opens opportunities for new users who would prefer an alternative to inhaling cannabis. Approximately one in four Canadians either already consume cannabis edibles or would like to.
The Cannabis industry started with two main silos: agriculture and R&D. Introducing food and beverage into the ecosystem enables a whole different industry to take advantage of creating and distributing new products. Several companies are already developing relationships and acquiring assets, either to take advantage and develop new cannabis derived products or to hedge their own products, such as alcohol, that may be cannibalized by cannabis products. In August 2018, Constellation Brands, Inc. (NYSE: STZ), international distributor of Corona, invested C$5 billion for a 38 percent ownership stake of Canopy Growth Corp. (TSE: WEED), the largest cannabis company in the world by market capitalization. Similarly, Molson Coors Brewing Co. (NYSE: TAP), the world’s seventh largest brewer by volume, developed a joint venture with Quebec based cannabis company, Hexo Corp. (TSE: HEXO), with a 57.5 percent controlling stake. These two collaborations between alcohol companies and cannabis companies will explore opportunities in developing Canada’s first cannabis-infused, non-alcoholic beverages.
The Canadian government’s main goals in amending the Cannabis Act is to minimize the public health impact by restricting access to illegal and potentially harmful cannabis products from the unregulated black market. The black market currently supplies consumers with numerous cannabis derivatives including edibles and topicals. To drive out the black market, edibles and other alternatives are quickly being legalized so that consumers don’t have to turn to unregulated suppliers and distributors.
The Cannabis Act requires that the cannabis regulations are amended yearly and this amendment will come into effect on October 17, 2019, when manufacturers will be able to apply to Health Canada to sell their edible products and then at least 60 days before Health Canada approves the products for sale. Therefore, it is expected that new products will come to market closer to mid-December 2019.
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Canopy Growth Corp. (TSE: WEED)
Headquartered in Ontario, Canada, Canopy Growth Corp. is the world’s largest cannabis company, based on market capitalization. Canopy was the first to export cannabis to Germany, the first to make a partnership with a global beverage company, and the first to have an agreement to acquire a U.S. based cannabis company. To prepare for legalization of edibles, Canopy has recently acquired a 950,000 square foot chocolate production facility to develop cannabis-infused chocolate bars. Canopy is currently trading at C$53.60 a share with a C$18.54 billion market capitalization.
Aurora Cannabis Inc. (TSE: ACB)
Headquartered in Edmonton, Canada, Aurora is the second largest cannabis company in the world, based on market capitalization. In 2018, Aurora bought 25% ownership interest in Alcanna (previously “Liquor Stores N.A.”) with an option to raise the stake to 40%. Alcanna is currently the largest private sector liquor retailer in Canada. Aurora is currently trading at C$10.24 with a C$10.41 billion market capitalization.
Hexo Corp. (TSE: HEXO)
Headquartered in Quebec, Canada, Hexo Corp is the leading cannabis brand in Quebec. Hexo is a low-cost cannabis producer through utilizing hydroponic technology while receiving subsidization on hydro costs from the provincial government. On August 2018, Hexo partnered up with Molson Coors to create a new joint venture called Truss. Hexo is currently trading at C$7.11 with a C$1.83 billion market capitalization.
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