Today, Canada’s first cannabis dispensaries open their doors and begin selling products for recreational purposes. As the first major economy to completely legalize recreational sales of marijuana, today marks the birth of a new industry in Canada. However, with all the market buildup leading to this moment, how are markets reacting to this moment in history?
The Canadian Cannabis LP Index (CCLI), which represents 40 publicly traded marijuana companies, is currently down 3.28% at 11.31 EST. Canopy Growth Corporation (NYSE: CGC), formerly known as Tweed Marijuana Inc, is a medical marijuana company based in Ontario. The Company had previously seen share gains of 84.06% in the past 6 months of trading. Similarly, Aurora Cannabis Inc (OTC: ACBFF), a Canadian licensed cannabis producer, has experienced gains of 59.9% over the past 6 months. The anticipating implementation of Canada’s new laws on October 17th prompted companies to invest heavily in supply. Overtime, North American consumers are expected to help this industry reach new milestones. A research report by Arcview forecasts that spending in the North American region on legal recreational use of cannabis is expected to grow by 246% from USD 4.3 billion – USD 14.9 billion by 2021.
However, Canada’s cannabis industry faces a significant challenge, the problem of an unclear regulatory environment. According to an EY publication, due to the differences in provincial regulatory requirements, competition between Cannabis produces is still unclear as the regulations governing cannabis use and production are different in each of Canada’s 10 provinces. Moreover, as outlined by Monica Chadha, partner at Ernst and Young, as Canadian cannabis producers raise production, they must ensure they create an operating model that is low costing yet with high quality standards.
Some companies are finding creative solutions to the problem. Biome Grow Inc. (CSE: BIO) CEO, Khurram Malik, spoke today about how the company has a competitive advantage in the region of Atlantic Canada. Khurram believes that because of the firm’s established local brands in underserved provinces, Biome has the ability to utilize provincial regulatory difference. Despite being a newly formed company, Malik feels this provincial branding strategy will be Biome’s competitive advantage over industry giants when demand and supply stabilize in 2020. The company boasts an estimated 390.000 square feet of production capacity under development or operation mainly in the region. Furthermore, Bio has launched an innovative approach for branding by launching a virtual dispensary education platform called WeedVR.
All things being equal and taking into consideration, despite the downturn in the CCLI, Canada’s cannabis sector will in the long-run become a force to reckon with in both in revenue growth and tax receipts.