U.S. marijuana companies are keeping a close eye on the development of Canada’s edibles sector, but executives say the regulations proposed by Health Canada will be burdensome for manufacturers – and ultimately make them less competitive with the illicit market.

Canada’s health department unveiled its proposed rules for edible cannabis and infused beverages, extracts and topicals to establish parameters for a new wave of businesses and entrepreneurs aiming to capitalize on the country’s marijuana industry.

Businesses and the public can submit feedback until Feb. 20, 2019.

The final version of the regulations could be published this summer, leaving time for the rules to take effect before Oct. 17, 2019.

Industry sources are raising concerns about packaging restrictions that are stricter than most American states that already have thriving edibles markets.

Also, some states have much higher packaging limits for medical cannabis patients than recreational users – in some cases, it’s double.

Not so in Canada, where the proposed regulations will apply to recreational users as well as medical cannabis patients.

“Canada’s new edibles regulations deviate pretty significantly from similar policies within the U.S. and will make it more difficult for Canadian operators,” said Jordan Wellington, chief compliance officer at Simplifya, a Denver-based compliance software company.

“By limiting the entire packages to 10 milligrams of THC, the regulators will increase the amount of packaging waste associated with edible cannabis products and make legal businesses less competitive against the black-market operators that aren’t restrained on edible potency.”

Read a complete copy of the proposed regulations here.

Illicit market advantage

The proposed low per-package THC limit might suppress consumer demand for edibles and inadvertently provide a boost to the illicit market, said U.S. infused product manufacturers who are actively pursuing business opportunities in Canada.

If the proposed limit becomes final, manufacturers will see a “fundamental increase in (their) cost structure,” said Nancy Whiteman, CEO of Wana Brands, a Colorado-based, multistate infused product manufacturer.

“Anything that elevates the cost structure for manufacturers is almost by definition going to make it harder to compete,” she said.

“The cost to manufacture a 10-milligram product is almost the same as the cost to manufacture a 100-milligram product,” said Peggy Moore, CEO of Love’s Oven, a Colorado-based maker of infused products.

“Depending on the packaging and labeling requirements, the cost to purchase a 10-milligram edible is high for what you’re getting. And I think that will cause consumers to revert back to the illicit market or buy extracts and make edible products at home.”

Ultimately, the increased cost of manufacturing is passed on to consumers, both Whiteman and Moore noted.

“Canada has a thriving illicit market,” Moore said. “If people can only buy very low-dose products in regulated stores, they’re going to continue to go to the illicit market.”

The proposed per-package limit on THC for edibles also doesn’t add up with what regulators have recommended for extracts and topicals, Whiteman said.

“When I looked at (the regulations), I thought there had to be a mistake,” Whiteman said. “What’s listed for edible solids and beverages is so at odds with the dosage amounts for extracts and topicals. Why allow 1,000 milligrams for extracts but only 10 milligrams for edibles?”

Whiteman and Moore said they expect – and hope to see – the regulations evolve in a more consumer- and business-friendly way.

Single-serving products ‘a tough sell’

Canada’s low per-package THC limit could relegate sales to packages of low-dose products or single servings, American business executives say – and in their experience, those kinds of products have been less appealing.

For example, consumers are much less likely to buy one beer at a beer store than they are a multipack.

It doesn’t make sense for manufacturers or consumers, said Julie Berliner, founder and CEO of Sweet Grass Kitchen, an infused product manufacturer based in Colorado.

“It’s not just burdensome to manufacturers; the cost gets translated on the shelf,” she said.

A 10-milligram THC limit for a single serving and 100-milligram, per-package limit like you see in California, Colorado and Washington is reasonable, Berliner said.

“Single-serving products in Colorado are a tough sell,” Berliner said. “They work for tourism, but they’re really expensive for us to make because packaging regulations are so stringent.

“Anyone who is price-sensitive really shies away from single-serving products because you just don’t get as much bang for your buck.”

Canada is an intriguing market for Colorado’s cannabis businesses, Berliner said.

“Colorado’s market has become stable, and for those of us who have been doing this as long as we have, we know what to expect,” Berliner said. “We’re asking ourselves how we can apply what we’ve learned here to other markets, including Canada’s.”

Additional reporting by John Schroyer in California.

Joey Peña can be reached at [email protected]

Matt Lamers can be reached at mat[email protected]

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