Legalized marijuana presents opportunity of a lifetime for Canadian entrepreneurs
Canada is creating a $23 billion business opportunity. And that's just the beginning.
The modern-day prospectors in Canada's new cannabis market are working hard and cutting deals as the final eight months tick down to the day when recreational marijuana is fully legalized.
Like the gold miners who trekked to the Yukon 120 years ago, today's fortune hunters are forging into the unknown. Some will get rich, some won't make it, and a few will leave their mark for generations.
The motherlode is an industry valued at $23 billion, according to research from accounting firm Deloitte. That includes growing and retail sales, transportation, security, edibles, taxes, and tourism.
Canadians could also be at the forefront of a growing global business, exporting not only cannabis and its derivatives, but also the technology to grow it.
Pot sales already rake in billions and employ an untold number of people. But that's the black market, an illegal racket enriching criminal organizations. Corporate Canada is plotting its takeover and the new bosses have business degrees, corner offices and expensive suits.
They face the daunting task of turning a big business that's operated outside the law into a legitimate legal enterprise. A big part of it is navigating through new federal regulations, laws and bylaws that are still in formation.
The first big test for these cannabis entrepreneurs is whether they can draw the nation's estimated five million existing consumers away from the underground market.
"Just like any other competitor entering a new market, the incumbents aren't going to give up easily," says Kyle Murray, vice dean of the University of Alberta's school of business.
Eliminating the black market
Most provinces have not firmed up precisely how they'll sell pot to the public. Only Ontario and New Brunswick have announced a retail framework. In both cases, it will be government-owned stores like provincial liquor outlets.
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That's a big mistake, according to Greg McLeish, an analyst with Mackie Research Capital Corporation, an investment firm. He argues government-run retail outlets will actually help the black market thrive.
"These guys have been growing for a long time," he says, noting that price and convenience will be key in determining where people buy their weed.
McLeish also points out that it makes more sense to absorb people from the existing underground cannabis culture into the legalized system.
Corporate and cannabis cultures converge
One of the early leaders in the industry, Alberta-based Aurora Cannabis is among those actively recruiting from the underground.
"The hybrid culture that we've created, that uniquely hybrid culture has been incredibly satisfying to be part of," says Cam Battley, Aurora's executive vice president.
"Aurora is made up of suits like me, people from business backgrounds as well as people from the cannabis culture and have extensive knowledge and passion for the cannabis plant itself," he says.
The company already produces medical marijuana at its 5,000-square-metre grow operation in the village of Cremona, Alta. It's also building two additional high-tech greenhouses — a facility in Pointe-Claire, Que, and a massive operation at Edmonton International Airport — and branching out to edibles , hemp products, and growing kits.
Aurora is also looking overseas. It's inked a deal to supply medical marijuana to the emerging German market and bought into an Australian medical marijuana firm.
Battley says the company's diversity and international strategy will insulate it from any problems that could emerge from a bungled retail rollout at the provincial level.
"I have concerns they will not get it right," he says, pointing to Ontario's plans for retail sales. "This very limited, very controlled government monopoly approach will not crack the black market."
Canada has an international edge
As the first major industrialized nation to fully legalize recreational marijuana, Canada is an early leader in a field.
"It gives us first-mover advantage," says U of A's Murray. "We can be the innovator in some products, we can learn new approaches to developing and harvesting."
Germany, with a population of over 80 million people legally sells medical marijuana in its pharmacies, but lacks domestic production. Along with Aurora, three other Canadian firms have signed contracts to put their products in German drug stores.
Thinking beyond the joint
Nutritional High, a Toronto-based company, is looking south with a wide roster of products. In Colorado, the first U.S. state to legalize recreational marijuana, it has built a production facility that produces cannabis-infused chocolates, candies, tinctures and topical creams. It's also setting up operations in other states.
"Some people will want to smoke the product, some people want to vape the product, some people want to eat products like gummies, or edibles or chocolates, other people are going to want pills," says company chairman David Posner.
Canadian regulations won't allow the sale of edibles when marijuana becomes legal on July 1, 2018. But the federal government says they will come later.
Billions of dollars, thousands of jobs
The impact of legal cannabis in Canada will have a long reach. The cannabis corporations that are now emerging will need accountants, public relations professionals, packagers, security and legal experts. They'll be leasing office space, buying furniture, paying taxes, and hiring lots and lots of people.
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Governments are spending millions on education, police and testing. Laboratories are getting a boost as part of research and development programs.
And there's potential for people with skill in recognizing the subtle qualities of a bong hit to find new careers as "budtenders" — the cannabis equivalent of sommeliers.
But experts say not all the new businesses will thrive or even survive.
"We'll have an opportunity so see who's more innovative, who's more efficient in production and can control costs," Murray says.
In the goldrush that started in 1896, most of those who made lasting fortunes were not the gold miners. Rather, they were the ones selling picks and shovels, building hotels and restaurants, and supplying food and clothing to those hoping to strike it rich.
In Canada's new green rush, it could well be that the ones who achieve lasting success are those who find a profitable niche somewhere between the seedlings and the smoke.
With files from Raffy Boudjikanian