Canada Is Fertile Ground For The Global Marijuana Industry

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Photo Credit: Jesse Costa

Canada has become the first industrialized country in the world to legalize recreational marijuana, unlocking a market that could be worth billions of dollars.

On Tuesday, the Canadian Senate approved the Cannabis Act, which allows adults to use the drug coast to coast. Prime Minister Justin Trudeau acknowledged the historic decision on Twitter.

Justin Trudeau @JustinTrudeau

It’s been too easy for our kids to get marijuana – and for criminals to reap the profits. Today, we change that. Our plan to legalize & regulate marijuana just passed the Senate. #PromiseKept

Sales could begin within eight weeks, and the economic impact will likely be significant. Canada’s cannabis market will pass $7 billion by 2019 and legal sales will make up more than half that amount, according to a report this month by Deloitte.

Canadians knew the green wave was coming. Medical marijuana has been legal in Canada since the early 2000s, and in that time Canadian businesses have been able to grow and distribute the drug around the globe.

“Canadian businesses have become by far the largest cannabis businesses in the world,” says Kris Krane, president of 4Front Ventures, a U.S.-based marijuana investment firm.

Krane argues the lenient federal approach to marijuana law in Canada means the United States is falling behind. The U.S. is “literally giving the next billion-dollar industry — the next internet boom — to the Canadians,” he says.

The Rise Of Canopy Growth

The end of marijuana’s prohibition in Canada will ripple through the town of Smiths Falls, Ontario. It is home to the headquarters of Canopy Growth, a company that only started producing medical marijuana in 2014.

Since then, Canopy has expanded to 10 countries. In May it became the first marijuana business to list on the New York Stock Exchange — a privilege its peers in the U.S. do not have because the drug is still illegal federally south of the Canadian border.

“It’s huge,” says Canopy CEO Bruce Linton, referring to his company’s public offering. “If you think about credibility, if you can go to the same bell that Rockefeller rang, that’s kind of as good as it gets.”

Canopy’s shares are valued at $6.6 billion, and it’s not alone in the market. Toronto-based Cronos made history when it listed on the NASDAQ in February, and other competitors like Aphria Inc. and Aurora Cannabis have also received soaring valuations.

“There is a bit of a bubble right now it seems like, and everyone expects that at some point that’s going to burst,” Krane says.

Krane questions Canopy’s multibillion-dollar valuation when it only made $40 million in revenue last year, and just $12 million the year before.

“Canadian businesses have become by far the largest cannabis businesses in the world.”
— Kris Krane, president of 4Front Ventures, a U.S.-based marijuana investment firm

“The Canadian valuations are very hard to justify,” he says.

But Linton is betting that the end of prohibition will allow his company to grab an even greater share of the market. With the Senate’s vote now official, he predicts Canada will go from 300,000 medical marijuana users to an estimated 5 million recreational users.

“I have avoided being profitable,” Linton says. “It would be like winning the warmup. You’d have to be a nut to try and be profitable for the stretching exercise we’ve been doing.”

From Chocolate To Cannabis

By the end of the year, Canopy executives plan to stretch even further by hiring another 2,500 people.

The company is also busy expanding its factory in Smiths Falls, and that alone is noteworthy in a rural part of Canada that has been devastated by globalization.

For more than 40 years, the town was known as the “chocolate capital of Ontario,” according to Mayor Shawn Pankow. The Hershey’s Chocolate logo was even painted on the Smiths Falls water tower. But in 2008, the company shut down its operation there.

“Oh, angry,” says Pankow, describing the mood in town when Hershey’s left and moved many of the local jobs to Mexico. “They took 600 jobs, and a big part of our local economy, and huge part of our identity with them.”

And the hits kept coming. A home for the developmentally disabled closed and took 830 more jobs with it, according to an estimate by the town’s Heritage House Museum. Stanley Tools also shuttered its operation — another 175 jobs, gone.

“That was devastating,” says Nancy Evoy, who lost her job making Oh Henry! candy bars on the Hershey factory floor. “When I was at Hershey I was between $22 and $23 an hour. And when Hershey’s left I went to minimum wage.”

A decade later, Canopy has moved into the building. Evoy is one of several former Hershey’s employees back working at their old haunts — helping make cannabis oil instead of peanut butter cups.

“It’s kind of surreal to be back in the building where it all started,” she says.

The industry has also helped breathe new life into Smiths Falls. Realtor Garry Dalgleish says he’s seeing a housing shortage and bidding wars for the first time ever. Normally stagnant home prices are also inching up, he says, from the typical 2 percent annually up to as high as 5, 8 and even 10 percent.

“In the history of real estate I think anybody would tell you we’ve never seen anything like this before,” he says.

Resistance To The Boom

Canada’s forgiving marijuana laws have certainly helped fuel the rise of Canopy, and they can at least partially be credited with the recovery in Smiths Falls.

But not every resident in the town of 9,000 is happy about full-blown legalization. Some are worried about stoned drivers. Others, home-growing operations.

“In our industry it’s going to cause some problems,” says Dalgleish, citing the provision in the law legalizing marijuana that will allow people to grow it for personal use. “What happens now when you grow your four plants in your house and you try to resell it? Some of the information out now is indicating 40-50 percent wouldn’t consider buying a home where it had been growing. That’s a negative.”

A poll taken in March showed Canadians are still split over legalization: 38 percent of those surveyed say they are opposed to it.

Count Debra Kimberly Finley among them.

“There’s enough of it out there already without allowing more,” she says. “You’ve got to stop it, not increase the volume out.”

The longtime Smiths Falls resident says she has no interest in a job at Canopy, and she’s not pleased that lawmakers are giving the drug an even bigger boost in her hometown.

“They’ll just call it the ‘Dope Town,’ ” Finley says. “I believe it’s a downfall.”

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