Legal cannabis marks beginning of an industrial evolution
Access to cannabis is constantly evolving and, in a matter of months, Canada is poised to become the largest legal market of cannabis worldwide.
Under the Access to Cannabis for Medical Purposes Regulations(ACMPR), medical cannabis is currently legal nationwide in Canada. Demand in the medical space is forecast to increase ten-fold by 2024.
Taking it a step further, the Canadian government is planning to legalize cannabis for adult-use this summer. As such, the adult-use market is forecast to grow to $6 billion by 2021 and a total market demand of more than 600,000 kg of product.
As the next booming sector, entrepreneurs, companies, and enthusiasts alike are preparing for new opportunities in the cannabis industry.
There is a projected shortfall of supply based on current capacity and market demand – posing an upside for companies looking to capitalize. Here are a few ways companies are preparing to capitalize on the legal adult-use market.
Diversify Product Offerings
With recreational legalization, there will be increased consumer demand for new and innovative products, including cannabis oils and edibles.
While dried flower has dominated the market, cannabis oil is becoming extremely popular. It is preferred by medical professionals who can more easily prescribe doses to patients, and by individuals who do not want to smoke their medicine.
We can expect to see cannabis oils continue to gain market share in both recreational and medical spaces, and more companies applying for licenses to produce and sell cannabis oil.
We also anticipate that customers will gravitate towards cannabis-infused edibles and other extracts. While the Canadian government still has not authorized the sale of these products,edibles could be permitted one year after the recreational marketopens, making ample room for new product development.
Licensed producers will need to build out new infrastructures as well as research and development capabilities to develop infused products.
Alternatively, Licensed Producers may establish partnerships to avoid upfront costs and tap into the expertise of other organizations that already know how to produce these goods.
Develop Strategic Partnerships
To meet increased demand, the cannabis industry will likely see a wave of consolidation, even as it expands.
Some companies will team up via mergers or acquisitions to increase the diversity of their products in preparation for the recreational market.
Things are moving at a rapid pace, and the companies that will flourish are the ones that can industrialize and produce on a large scale. Companies will be seeking partners and investors, giving many Canadian and foreign entities opportunity to engage with experienced licensed producers.
We’ve already seen some major partnerships and investments over the past year.
Constellation Brands (a Fortune 500 producer of wines, beers, and spirits) recently invested $245 million into Canopy Growth Corporation, signaling a major validation in the cannabis space. We can expect to see other companies from the alcohol, pharmaceutical, and consumer product markets enter the cannabis industry.
Emerald Health also acquired Licensed Dealer Northern Vine to enhance product development ahead of adult-use legalization in Canada.
This may be the beginning of intense M&A activity in the cannabis industry, as companies find ways to quickly and efficiently build out their offerings and production capabilities.
Increase Cannabis Production
According to the Brightfield Group, recreational cannabis is predicted to bring in more than 500,000 users in its first year, which will lead to a sudden and steepincrease in demand. As such, Licensed Producers are expanding their operations to have additional product available by summer 2018.
Health Canada is also reviewing and approving new Licensed Producer applications to help address the potential shortage of supply.
Emerald Health is one of many companies gearing up to meet future market demand. The company recently partnered with Village Farms, an industry-leading greenhouse grower, to leverage their existinggreenhouse assets and large-scale growing expertise. It is currently retrofitting one of the world’s largest indoor growing facilities at 1.1 million sq. ft.
Looking long-term, there is an option to add another 3.7 million sq. ft. of growing space, for a total of 4.8 million square feet (300,000 kg of product).
The future of cannabis is bright. With the upcoming legalization of adult-use cannabis in Canada, we will continue to see the space evolve here and across the world. It’s exciting to bring this industry out of the darkness and into the light.
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