Quebec’s Legal Cannabis Market

Written off by some, the province of Quebec offers cannabis producers benefits that shouldn’t be ignored.

Quebec might not seem like the obvious place to get into the cannabis business. For the few cannabis businesses calling Quebec their home however, there is major upside and potential in doing business in French Canada.

The Canadian market spent $5.7 billion on cannabis in 2017, and, according to Marijuana Business Daily, Quebec’s recreational cannabis market could well grow to become the second largest in Canada, mirroring its status as the second most populous province. The Parliamentary Budget Office estimates that the province could consume as much as 200,000 kilograms of cannabis next year. That ties together with a potential for annual recreational sales of around $150 million in Quebec in 2019.

Because Quebec is warming to the cannabis industry at slower pace than the rest of Canada, many businesses are skeptical about the idea of operating in the province. Public opinion in Quebec is the least friendly to cannabis in the country and as a reflection of that sentiment, the regulatory framework laid out by the provincial government is among the most restrictive in the Canada. The upside to this, however, is a provincial cannabis industry that is far less crowded than the rest of the country

As of now, Quebec has a very small pool of licensed growers and the smallest rate of license applications in the country. This means that there are only a few players around to take advantage of a massive and barely tapped market.

Cannabis in Quebec

As with the other provinces, the Quebec government is responsible for regulating and enforcing the production of cannabis as well as laying out health and safety regulations and restrictions. The provincial government unveiled its plans for regulation in November of last year and has decided that the Société des alcools du Québec, the same organization through which liquor is sold in the province, will oversee the sale of cannabis. Cannabis sales will be limited exclusively to 20 government-run stores. Growing at home is strictly forbidden in the province. As is any form of unlicensed cultivation, whether for personal or commercial use.

However, tough regulations are only one part of the story for cannabis businesses in Quebec.

Hydro Quebec provides companies with the least expensive energy in Canada. Additionally, since Quebec has 20 percent of the country’s population and only a few of the licensed cannabis producers, there is a strong pool of land, labor and technical expertise available for low cost in comparison to the rest of the country.

Since the Quebec provincial government will be supporting the retail outlets where cannabis is sold, it is likely that the government will prefer to source their product from local growers, putting local producers in a potentially enviable situation.

Another benefit for cannabis companies in Quebec is the province’s post-secondary institutions, who are eager to be involved in clinical studies and research, according to Rob Gietl, CEO of Canadian cannabis producer MYM Nutraceuticals (CSE:MYM). MYM will be opening two large growing facilities in Weedon and Laval Quebec and operate distribution and nutraceuticals manufacturing throughout Canada. Gietl says this eagerness on the part of post-secondary institutions will create a “syndicate of experts” that will help companies like MYM develop intellectual property that can be shared globally.

Still, there’s a cultural aspect that cannabis producers must contend with. In regards to public opinion, Quebec is the least enthusiastic province in the country about cannabis legalization. According to a report released by the government of Quebec last year, 60 percent of survey respondents were worried about consequences of legalization, though 57 percent of those respondents were overall in favor of legalization.

According to Gietl, data like this speaks to a need for outreach on the part of cannabis producers to encourage engagement with the communities in which they do business. To that end, MYM has launched an awareness campaign, asking users to visit www.cannafacts.ca to “initiate a conversation with Canadians.”

Quebec’s cannabis industry players

Currently there are six cannabis producers licensed to operate in Quebec; Agri-Médic ASP, Agro-Biotech, Aurora Cannabis Enterprises (TSX:ACB,OTCQB:ACBFF,FWB:21P), Hydropothecary (TSX:THCX), IsoCanMed, and Vert Cannabis. The province announced these first licensed producers in February of 2018.

Though not yet licensed in Quebec, MYM and its subsidiaries are deep in the process of acquiring licensed producer status. The company has big plans for Quebec. They’ve entered into a partnership with the municipality of Weedon, Quebec to build a 1.5 million-square-foot greenhouse facility in the town, capable of producing 150 metric tons of cannabis per year. In addition to serving as a growing center, the facility will serve as a space for research and development of cannabis products.

The Weedon facility will also serve as a means for community outreach. The facility is going to include such amenities as a cannabis museum, research facilities, an auditorium, and more. This is part of the company’s effort to get the local community engaged with the industry.

Takeaway

Quebec has been written off by some as too hostile to the cannabis business. Companies have been slow to move into the province, but it’s precisely because of this that Quebec presents such an interesting opportunity for cannabis producers. A market of over eight million people with only a handful of companies moving in to serve the province coupled with low hydro costs and relatively inexpensive talent suggests that Quebec could be a remarkably good opportunity for the few cannabis producers willing to move in on the underserved market.

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

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