In October 2015, companies engaged in the licensed production and sale of marijuana welcomed the victory of pro-decriminalization candidate Justin Trudeau. Exactly what the victory meant for the heavily regulated industry was unclear but several publicly traded companies enjoyed an immediate rise in stock prices as the potential size of the market expanded significantly.
In early 2014, this blog commented on the increase in market activity ahead of new medical marijuana regulations coming into force on April 1, 2014 and noted that, at that time, Health Canada estimated that sales in the industry could reach $1.3 billion by 2024. The significance of the Liberal victory is that the potential size of the marijuana market has exponentially increased due to the fact that a recreational market is now on the horizon. According to Globe and Mail source Martin Landry, that recreational marijuana market could be worth between $4-billion and $5-billion per year. That figure is substantially higher than Health Canada's estimate for the medical marijuana market.
Some of the more high profile transactions to date have involved public companies but only a few of the companies operating under the twenty-nine licenses issued by Health Canada are public. This suggests that in light of the Liberal election victory, that sector of the market appears ripe for activity. However, the industry also faces significant uncertainty. For example, the recent decision of the Federal Court in Allard v Canada has thrown Health Canada's regulatory regime into doubt as Justice Phelan found that laws requiring patients to purchase marijuana from licensed producers were unfairly restricting access to the drug. Although parliament will likely amend the laws, it is unclear what impact that decision might have on the perceived market value of a licensed producer.
Further, notwithstanding the positive projections that followed the October election, it does not appear that further legislative change, both in regards to the existing medical marijuana market or the potential recreational market, will pass as quickly as some in the industry had hoped. The appointment of former police chief Bill Blair to spearhead the government's decriminalization efforts indicates that the government is determined to move forward but there remains much to be done. Over the next year, it will be interesting to see if the initial high that greeted the rise of the Liberal government recedes as the industry is forced to deal with the slow pace of regulatory change and potential participants are discouraged by the uncertainty that hangs over the market.
The author would like to thank Andrew Nicholl, articling student, for his assistance in preparing this legal update.
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