Canada: Room To Grow – Legalization Means Opportunities For Pot Companies Big And Small

Photo Credit: Gabrielle Lurie

When recreational cannabis is legalized in Canada later this year, the country is going to be facing a “welcome problem.”

“We have a unique and welcome problem in this industry,” says Allan Rewak, Acting Executive Director of the Cannabis Canada Association. “We will not have enough cannabis to supply the industry post July.”

In Sept. 2017, Mackie Research Capital Corp. issued a report estimating that Canada would require approximately 795,000 kg of marijuana in order to meet demand in 2018, The Financial Post reports, but estimated the capacity of producers at the end of 2017 to be at about 100,000 kg.

“The amount of invested capacity today and that is expected to be built up for the foreseeable future, that will not catch up to demand for another two years,” says Matei Olaru, CEO of Lift, an online platform that allows for medical marijuana users to share reviews about cannabis products, and educates consumers about their cannabis purchasing options.

“We’re expecting say until 2021, 2020, a healthy two years after July, during which demand will outstrip supply.”

Olaru says that while the apparent “arm’s race” for producers and retailers to lock down supply chains appears to favour big companies like Canopy Growth, Aurora Cannabis and Aphria Inc., the demand will benefit everyone.

“It’s evident that the larger players are being rewarded because they’re the most stable,” says Olaru. “The government is saying they want to secure the largest players because they want to be prepared for this scenario they know nothing about.”

“It’s important to understand that these [large producer agreements] are simply the beginning,” says Rewak.

Just like Canada’s $22.1 billion-alcohol industry, the recreational marijuana market is poised to be made up of larger producers that retailers can turn to for a stable supply of product, and smaller ones that will help cater to a niche, craft range of tastes and lifestyles. With the recreational marijuana market in Canada expected to be worth between $5 billion and $10 billion, there’s a wide array of business opportunities for companies who seek them.

Boutique bud

In February, Ontario held a “supplier prep day” in Toronto, open to all 90 currently-licensed producers from across the country. The event, hosted by the Liquor Control Board of Ontario and its marijuana subsidy the Ontario Cannabis Retail Corp., helped to show that there is space for companies of all sizes in Canada’s upcoming recreational marijuana market.

“The process for procuring cannabis supply for the OCRC will be open to all Canadian licensed producers,” LCBO spokesperson Nicole Laoutaris told The Financial Post. “The OCRC has not yet entered into any supplier agreements.”

While Ontario, as well as Quebec, New Brunswick, Nova Scotia, P.E.I., and Manitoba have opted for government-run liquor control board stores, other provinces including B.C., Newfoundland and Labrador, Alberta and Saskatchewan will sell through private licensed retailers.

The diversity of approaches has meant that startups like Canwe Growers, an Ontario marijuana producer that is in the process of getting their production license, will be able to find retail space for their product. Operated by New Maple Holdings, Canwe applied for a license last July, and is in the final weeks of the security review process.

Co-founder of New Maple Karim Nehme says that smaller companies will be able to stand out against the big players just like in the booze industry.

“If you look at beer, there’s something like 1,500 beer companies, all the larger players and all the craft brews,” says Nehme. “But they all came along, they did something different, and managed to grow.”

“We’re trying to focus on quality, no matter the size of the company,” adds New Maple CEO Tegan Adams. “To set ourselves apart, we’re focusing on the quality of the grow, and the quality of the team.”

New Maple and Canwe are currently in the process of developing their product lines, but part of their strategy will be focusing on lines targeting women, and products that would appeal to a broad female audience as well.

Hiku Brands is also focusing on a niche customer experience, targeting the sophisticated and refined cannabis consumers.