Under the new regulations, the federal government will license
commercial operators to produce, package and distribute a range of
standardized marijuana products, with prices to be determined by
market supply and demand. The potential profit for commercial
producers is significant: Health Canada estimates that the number
of licensed medical marijuana consumers will increase almost
ten-fold to over 300,000 in the next decade.
With the new regulations set to come into full force on April 1,
2014, companies such as Tweed Inc. (Tweed) and Easton
Pharmaceuticals Inc. (Easton) are poised to
enter the market as prospective medical marijuana producers.
The potential market for medical marijuana in Canada has also
attracted investment interest from south of the border. Privateer
Holdings Inc, a Seattle-based venture capital firm, has invested
millions through its Canadian subsidiary, Lafitte Ventures Ltd.,
for the production of medical-grade marijuana inside a $3-million, 35,000-square foot facility in
Nanaimo, British Columbia. Similarly, CEN Biotech, the Canadian
subsidiary of Creative Edge Nutrition, has obtained a 'ready to build' letter for
a 58,000-square foot production facility in Lakeshore, Ontario.
In addition to recent commercial and investment interest, the
medical marijuana industry provides new opportunities for M&A
activity in Canada. In an economy facing major drug patent
expirations, decreased R&D budgets and increased generic
competition, many pharmaceutical companies have turned to the
acquisition of specialty biotech and pharmaceutical companies for
future growth and expansion.
The lucrative profits and potential growth of the medical
marijuana industry in Canada pose an attractive opportunity for
Canadian pharmaceutical and biotech companies to expand existing
product lines and enter an entirely new industry. However,
companies eyeing potential acquisitions face unfamiliar territory
as profits, market demand and competition in the industry will
remain largely unknown until commercial producers begin production
and distribution following the full implementation of the new
regulations starting April 1. Despite this uncertainty, for some
companies, a head start into the market for legal marijuana may
very well be worth the risk.
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