As we have previously discussed, Canada has positioned itself as a global leader in the cannabis space. That trend is set to continue on October 17, 2019, when it is expected that alternative cannabis products, which include edibles, infused beverages and topicals containing cannabis and cannabis concentrates will be legalized in Canada. The sale of a new and wider range of products will create valuable opportunities to tap into a growing market of consumers – particularly, those less comfortable with traditional cannabis consumption methods. According to a recent report published by Deloitte, it estimated that the Canadian market for these new products may be worth C$2.7 billion annually. Clearly, this has the potential to generate significant profits for cannabis retailers beyond products that are currently legal.
Although it is expected that edibles will likely account for approximately half of the increase in the market growth, there will be significant opportunity in capsules, topicals and cannabis-infused beverages. The global market for edibles and these other products is estimated to nearly double over the next five years to US$194 billion. Deloitte notes that the growth in the cannabis market with the introduction of these new products will continue to drive mergers and acquisition activity in this industry.
With the introduction of cannabis-infused beverages, alcohol companies and producers will want to avoid losing market share to competing cannabis products, thus paving the way for these companies to continue to search for growth potential in the cannabis industry through mergers and acquisitions, partnerships and joint ventures with existing cannabis companies. New products are likely to attract more pharmaceutical companies to this industry, which will be looking to draw consumers to their own Cannabidiol (CBD) products to manage various health issues.
M&A activity within the cannabis space has continued at a fast pace. Last year, there were over 700 transactions completed in the cannabis sector alone. The total value of these transactions was more than US$12 billion, with Canadian licensed producers being the most active. Currently, Canadian cannabis companies have some advantages over US companies, such as government support, access to capital markets and a supportive banking system. However, this could be changing. In December 2018, the Agriculture Improvement Act of 2018 (also known as the Farm Bill) was signed into law by Congress, thereby removing hemp as a controlled substance in the US. Hemp growers in the US will now also have access to similar advantages as their Canadian counterparts.
The new Canadian regulatory framework for alternative cannabis products will undoubtedly continue to progress and develop in the lead up to October 2019. As the cannabis industry changes, Canadian companies will need to maintain their competitive advantage through continual innovation, scientific research and working together with government regulators to expand into new markets, both locally and globally.
The author would like to thank Kevin Acuna, summer student, for his assistance in preparing this legal update.
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