Regulatory rulebooks

In the new recreational regime, adult-use and medicinal segments of the market operate separately with oversight from Health Canada. Federal government bodies oversee commercial production and processing of adult-use cannabis, while the provinces and territories are responsible for providing oversight of distribution, wholesaling and retailing. Most provinces and territories have elected to set up exclusive distribution channels for adult-use cannabis through their liquor control boards. As an exception, Ontario’s new Progressive Conservative government has decided to allow for private retail sales, limiting provincial involvement to the online Ontario Cannabis Store (OCS). Meanwhile, Health Canada has announced new federal commercial licenses to replace the Access to Cannabis for Medical Purposes Regulations (ACMPR) with a new set of production, processing and sales licenses that will allow greater flexibility for all types of cannabis companies.

The net result is that the provinces and territories have created a unique marketplace with their own regulatory requirements. At the same time, the new federal commercial licenses have rendered the core ACMPR license obsolete and allowed for greater intermediation along the value chain.

Strategic moves

While governments developed the legal and governance frameworks for the cannabis sector, LPs pushed ahead with a variety of strategic initiatives.

Numerous LPs positioned themselves for a role in the medical market, establishing supply agreements with pharmacies and product development arrangements with biotechs and pharmaceutical companies. This strategy also had LPs working with patients and physicians on education initiatives and with healthcare institutions and universities to fund research programs.

When the recreational cannabis marketplace opened, both recreational and medical consumers encountered a significant supply shortage. Many of the nation’s new cannabis stores went days without supply, with some provincial shops closing their doors due a lack of product. However, this shortfall is expected to last only 6-12 months, as most LPs have moved to aggressively expand their production–a move encouraged by investors–and Health Canada is quickly licensing a significant number of new producers.

LPs have also been challenged on how to differentiate their products, as Health Canada currently restricts branding activities and is still hesitant to allow new product forms/formulations. The government is expected to legalize new product categories, including edibles and cosmetics, by 2019 or later. For now, most producers are aiming to stand out in a crowded marketplace by offering a variety of cannabis strains, with some also trying to develop brands that register as “premium” lifestyle products. However, it will take time before the nascent industry develops the sophisticated branding and marketing techniques employed by other consumer packaged goods companies.

LPs are also pursuing supply agreements with provincial liquor boards. To succeed, these companies will need to have the right resources and tools in place to develop, submit and update the data these provincial bodies require. And when initial supply shortage is solved, they will need to adequately advise and service the liquor boards for supply continuity.

Finally, the liberalization of medical cannabis laws in the United States and overseas may help producers avoid potential oversupply in Canada and pursue more attractive economic opportunities. As such, LPs are looking to export both products and expertise. The risk here is that too many Canadian LPs are trying to become global corporations before they have established sustainable domestic businesses, opening the door to complications down the road.