You probably know by now that Canada will allow marijuana use for recreational adults in October. And you probably know that many projects assume the market will be big – with some estimates in the first year of $ 5 billion, and maybe even more.
What some may not know is that a potentially massive marijuana market has won I will not be going to Canada this year. But this market should be on its way to legalization in 2019, with companies such as Canopy Growth (NYSE: CGC) simmering on the denture.
Stop the Munchies and Vapes
Canada allows the legal use of marijuana in various forms from 17 October. These forms include dried cannabis, cannabis oil and cannabis seeds. However, cannabis foods and cannabis concentrates are not included on the list of permitted products.
The regulations for Canada's cannabis market for adults, issued by Health Canada, the Federal Ministry of Health, included in particular foods and concentrates used for vaporizing. Why? The Authority felt that more time was needed to develop specific regulations to handle the unique risks of these product classes.
Health Canada thought that different aspects of edibles and concentrates of cannabis require special regulations. Quality control, THC limits, portion sizes, and packaging / labeling were some of the areas where the department found that food and concentrate are sufficiently different from dried cannabis, cannabis oil and cannabis seeds to reflect more on regulatory requirements.
Health Canada has set a timeline of how much time should be available to complete these unique arrangements. The agency expects to be ready to sell legal cannabis and concentrate sales within a year of the implementation of the Cannabis Act, also known as C-45 Bill. This means that another legal marijuana market in Canada should be launched in 2019.
Fast-growing and lucrative categories
How big could the Canadian market for cannabis edibles and concentrates be? Judging by what has happened so far in the US, pretty big.
In Colorado, for example, cannabis foods claimed 11% of the total cannabis market in the state in the first quarter of 2014, according to data from BDS analysis. Concentrates accounted for 13% of the total market. Fast-forward to 2017 Q4. The market share for food products rose to 15%, while the market share for concentrates more than doubled to 29%. Meanwhile, the market share of dried cannabis in Colorado has dropped from 70% to 47% over the same period.
Other states that have legalized marijuana for recreational purposes have similar numbers. In California, food and concentrates accounted for 37% of the total marijuana market in the second quarter of 2017. Oregon's figure was – 36% over the same period. In Washington state, about 32% of the total marijuana market was consumed by food and concentrates.
BDS Analytics interviewed adults in these four US states that have legalized marijuana for recreational purposes. The research firm noted that out of about a quarter of respondents who currently do not consume cannabis but would consider doing so in the future, many stated that edible cannabis is the product they would most likely seek.
The possibilities in these two categories of marijuana products could be enormous. BDS Analytics believes that cannabis foods may "possibly provide the highest financial returns in a cannabis sector." Concentrates, especially those used for evaporation, were the fastest growing marijuana product category.
Waiting for Profit
Canopy Growth CEO Bruce Linton definitely has his eyes on the potentially lucrative market for edibles. Linton said in a recent CNBC interview that Canopy will launch a range of new products, with a focus on cannabis-soaked beverages such as non-caloric drinks containing mixtures of cannabinoids.
Selling these types of products makes a perfect sense of canopy growth. In October 2017, a huge producer of alcoholic beverages Constellation Brands (NYSE: STZ) perhaps best known for the distribution of corona beer, bought 9.90% of Canopy. The two companies also said back then that they wanted to work together to develop cannabis-soaked drinks.
Other Canadian marijuana breeders could plunge into battle. Last month, BNN Bloomberg reported that Molson Coors (NYSE: TAP) was in discussions with several Canadian companies, including Aurora Cannabis (NASDAQOTH: ACBFF) and Aphria (NASDAQOTH: APHQF) on collaboration on cannabis-soaked drinks. The report also showed that Molson Coors was potentially interested in investing in a Canadian marijuana breeder, as Constellation Brands did.
Until now, cannabis-soaked drinks in the US were only a small part of total cannabis sales. However, it could be a very different story in Canada, starting next year with important marijuana breeders in the country, who have teamed up with large beverage companies. And if the US loosens the federal laws on marijuana, the opportunity in the US should be even greater.
The end result is that a lot of money can be made in peripheral categories of marijuana. But for Canadian marijuana businesses, profits have to wait a bit longer.