Health Canada Raises Bar for Cannabis License Applicants

Health Canada is updating its licensing policies for marijuana grower hopefuls in an attempt to improve its application process and clear a backlog of applicants.

The government agency tasked with regulating licensed producers (LPs) in Canada announced on Wednesday (May 8) that any new applicant will need to have a built site that already adheres to Health Canada’s requirements.

Health Canada explained that, after a review of its process, the government found its resources were being mismanaged.

According to Health Canada, over 70 percent of applicants that have passed the first paper-based review of the process in the past three years haven’t submitted a required evidence package, therefore slowing the entire process.

“As a result, a significant amount of resources are being used to review applications from entities that are not ready to begin operations, contributing to wait times for more mature applications and an inefficient allocation of resources,” the agency said.

One immediate takeaway from the new regulations is the increase in urgency to find financing. Hugo Alves, president of Auxly Cannabis Group (TSXV:XLY), commented on that development in a tweet following the news.

I understand the reasoning, but the impact on new applicants shouldn't be understated. Financing a facility just became a lot harder.

Statement from Health Canada on changes to cannabis licensing https://t.co/5Tto6Spkr1

— Hugo Alves (@HugoAlves1972) May 8, 2019

The agency indicated that this move will hopefully align the process for cannabis licensing to that of other established industries, such as pharmaceuticals.

The new standards from Health Canada are being implemented immediately. The agency said all current applications will be reviewed in order to deem which ones don’t raise any concerns.

And, mark my words, it will lead to increased LP failure rates, with applicants scrounging up enough $ to build a tiny phase 1 and then finding it difficult to raise $ to expand/scale fast enough to survive.

— Trina Fraser (@trinafraser) May 8, 2019

There are now over 600,000 square meters of active cultivation space which, according to Health Canada, is capable of producing approximately 1 million kilograms of legal cannabis product per year.

The government estimates that this capacity represents the total amount of cannabis consumed in Canada by users of both the legal and black markets combined.

In a tweet, John Fowler, president of The Supreme Cannabis Company (TSX:FIRE,OTCQX:SPRWF), said the majority of the active cultivation Health Canada pointed to is going towards distillates and isolates.

Too bad most of it will produce “commodity cannabis” destined for distillates and isolates. Canada suffers from a shortage of good legal cannabis for flower consumers and, when legal, concentrate consumers who prefer less processed products. #PlantBased #WholePlant $FIRE https://t.co/IYCEHpXmhS

— John Fowler (@john_fowler_jd) May 8, 2019

Health Canada is now issuing updated guidance materials for applicants to reflect its changes, the agency stated on Wednesday.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.