Canada’s Established Cannabis Industry Enters a New Era with Full Legalization

- August 22nd, 2018

In Canada’s new recreational marijuana market it is the established medical LPs that have the real advantage.

Nearly 100 years after the start of prohibition, the next chapter in Canada’s cannabis story kicks off in October 2018 with the nationwide legalization of adult-use marijuana.

The country will only be the second in the world, behind Uruguay, to allow for both medical and recreational cannabis consumption. However, Canada reigns supreme in the emerging global cannabis market. In this next phase of legal cannabis, Canada’s established licensed producers (LPs) are expected to have a first-mover advantage both at home and abroad.

History of Canada’s path to legalization

Marijuana was declared illegal in Canada in 1923 when it was lumped together with cocaine, opium and morphine. The experimental vibe of the 1960s brought cannabis culture to the forefront of Canadian society, leading the Canadian government to form a commission headed by future Supreme Court Justice Gerald LeDain to investigate the role of government and law in regulating the use and distribution of non-medical cannabis. In its final 1973 report, the commission recommended decriminalizing the non-medical use of cannabis.

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While it may have taken nearly half a century for the recommendations of the LeDain Commission to finally materialize into law, the country has made game-changing progress in the less than two decades since the Ontario Court of Appeal rendered cannabis prohibition unconstitutional. The claimant under that case had been using cannabis to control his epileptic seizures — the court ruled he had a right to cannabis as a medical treatment, paving the way for the Marijuana Medical Access Regulations (MMAR) enacted by Health Canada in 2001.

Under the MMAR, Canadians could become licensed for the possession of dried marijuana for their own medical use, and could cultivate cannabis themselves or purchase it from a LP. The revised legislation under the 2013 Marijuana for Medical Purposes Regulations (MMPR) and the later 2016 Access to Cannabis for Medical Purposes Regulations (ACMPR) further pushed the country down the path toward a commercialized cannabis market by creating an industry of LPs and medical marijuana distributors.

The medical use and production of cannabis oil and cannabis-fused products became legal in 2015 after a Supreme Court of Canada ruling, expanding the market for cannabis products beyond dried flower.

Next chapter in Canadian cannabis: Technological innovation and global domination

Now that the shackles are off, the industry is free to advance both in terms of clinical research and technological innovation, from cultivation practises to cannabinoid delivery systems. Thus, setting the stage for Canada to become a leader in the burgeoning global cannabis market.

Most agricultural crops are grown outdoors — think Iowa’s cornfields, Saskatchewan’s wheat fields or Napa Valley’s vineyards. Not so with today’s cannabis. Reagan’s “war on drugs” in the 1980s, which incidentally had an impact on Canada’s drug laws as well, pushed cannabis production indoors, away from the probing eye of federal law enforcement. Modern indoor cannabis cultivation is the culmination of those decades of technological innovation, which led to the science of a controlled environment for high-yield, top-quality cannabis production.

This ability to control every dimension of the growing process (from temperature to light intensity to optimal nutrients levels) is most important to the medical cannabis market, which demands reliable and consistent dosing for both patients and clinical research studies. With cannabis now fully legal, cultivators will have the freedom to continue making advancements in plant-growing technologies and methods. In fact, technologies, such as hydroponics, aeroponics and vertical farming are revolutionizing the cannabis industry.

Both hydroponic and aeroponic grow operations involve growing plants without soil, resulting in healthier, higher-yield cannabis production with excellent cannabinoid and terpene profiles, while cutting both the price tag and the environmental footprint of water-intensive soil farming. In a hydroponic system, cannabis plants are grown in nutrient-rich water in sand or gravel; cannabis grown aeroponically requires no growing medium at all.

“This is a pharmaceutical-grade process for producing medical cannabis, resulting in some of the cleanest and most consistent product available,” Adam Woodworth, COO and chief cultivator of Canada-based LP James E. Wagner Cultivation (TSXV:JWCA), told INN. “By improving quality and reducing cost, aeroponics easily demonstrates its value as a large-scale production methodology.”

Woodworth and his family have a longtime tradition of cannabis cultivation experience and James E. Wagner was one of the first companies to receive a cultivation license under the MMAR. The company’s proprietary growing methodology, GrowthStorm™, incorporates aeroponic technology with its decades of research and cultivation experience. James E. Wagner has partnered with PRICE Industries on a research study to evaluate the ability of PRICE’s GRW horticultural environmental control units to optimize growth potential and harvest yield. 

Canadian medical LPs first-mover advantage

Technological advancements and years of cultivation experience are already shaping the next chapter of Canadian cannabis history, and placing the country’s LPs ahead of their peers in the emerging global cannabis market.

“Canada has the opportunity to move forward as international leaders in the cannabis industry,” said Woodworth, whose company has also partnered with Canopy Growth (TSX:WEED) to access the cannabis giant’s wealth of genetic material, as well as established distribution and sales infrastructure. “The systems being created, the technologies being developed and the culture that is unfolding will play a vital role in defining the future of cannabis on the world stage.”

Nations around the world are beginning to understand the health benefits of cannabis, and clinical research is opening up the therapeutic potential of cannabis across a wide range of ailments, from epilepsy to pain management to anxiety and depression.

With more and more governments legalizing marijuana for medical use, the global medical cannabis market is expected to reach $55.8 billion by 2025. The number of countries allowing imports of Canada-grown cannabis products has risen in the past year to include New Zealand, Australia, Germany, the Czech Republic, Chile, Brazil and Croatia. “More European Union countries will create new medical cannabis laws and expand the export market for Canadian LPs,” said PI Financial analyst Jason Zandberg. “Currently 12 of the 28 EU members have a medical cannabis program.”

With the US cannabis market still under the shadow of a Jeff Sessions-controlled Department of Justice, Canada’s LPs have first-mover advantage and a significant head start in the race to dominate on an early stage growth market free from competitors.

The takeaway

Under the new Cannabis Act, Canada will only allow its medical LPs to export their products, which givers further first-mover advantage to Canada’s longtime medical LPs. These companies, which have matured under Canada’s medical cannabis industry, will have first-mover advantage in the new recreational space as well; especially those that have already been able to establish strong brand recognition, perfect unique growing systems to develop premium product portfolios and have secured strong international partnerships for expansion both domestically and overseas.

This article was written according to INN editorial standards to educate investors.

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