California and Canada: Emerging Synergies

April 18, 2018

By Michael Elkin

As a Canadian living and working in California for the last three months, I can say that California and Canada are each unique markets. Comparing the two markets is challenging at best. On the one hand, Canada that has been operating in the medical cannabis market for the last 5 years. As of today, Canada has 101 licensed producers at various stages in their businesses. Canada is also heading for recreational legalization later this year.

Then you have California. As of January 1, 2018, California has opened the legal recreational framework to coincide with the existing medical landscape that has already been operating in the state for roughly 20 years. California, having a similarpopulation as Canada, has roughly 68 thousand cultivators that operate in the space. Needless to say, both markets face their own respective challenges as each begins a new era of legalization. For this article, I want to focus on a topic that will revolve around the finished product category and how both countries can work together to fill a need.

As the Canadian adult-use (i.e., recreational) market begins (in the not to distant future), we as Canadians and consumers will look to retail storefronts to purchaseour cannabis. As of today, the law is going to allow for the purchase of dried flower and tinctured oil. There is a long-term proposal by the federal government that will allow for the purchase and consumption of finished products sometime over the next two years. But where will the expertise around finished products come from? How will Canadian producers transition into the finished products space?

More and more, cannabis consumers will be looking to consume dosage forms other than smoking/vaping. The market appetite for finished products will continue to grow, but how will the current landscape of licensed producers meet this demand? The reality is, the adult-use finished product landscape will likely be lacking in variety and quality. It has currently been illegal for the sale of any finished products in Canada, and it is very likely that the current Canadian producers have not been gearing up for this emerging segment The current state of the Canadian producers has them focused mostly on “bud to market”. They seem preoccupied striking supply agreements with all the various provinces. Some Canadian producers are being proactive and striking deals with some American manufacturers such as Cronos Group and MedMen, or HIKU and Dossist. However, such deals have been few and far between, and there still exists a looming market opportunity for finished products in Canada.

If we look to our neighbours south of us, there has been decades of experience producing and manufacturing finished products. Despite a lagging regulatory framework in California, their experience in finished products is far ahead of Canada. Massive edibles, topical, concentrate and beverage companies have been flourishing in the space for the last few decades. On the heels of state-wide legalization on January 1 this year, finished product manufacturers in California are struggling to meet compliance within their new framework.In this way, it could be said that California’s learning curve will be around compliance; Canada’s will be around technology development.

So this begs the question - why is it not possible for these American companies to ship their products up north to supply the Canadian market? Surely our country would benefit from having access to amazing companies like Kiva Confections, Papa & Barkley, Select Oil, Kushy Punch, and so many more. The answer is simple; it is illegal to cross state boundaries with cannabis products of any kind.

At Cannabis Compliance Inc., though, we have helped our American clients find creative solutions in expanding into the Canadian (and global) markets. Through strategic licensing, CCI is able to shepherd these American companies across the border to be paired with a Canadian producer. This partnership would be created to develop and nurture American established finished product brands in the Canadian recreational cannabis space. This kind of joint venture benefits all parties; for the American company, they will get to operate in the Canadian space - and hence the global market. The Canadian producer, in turn, gets to form a partnership and learn the path forward for finished products and leverage established Californian brands. As the largest cannabis market in the world, California has significant intellectual property and technology which Canadian producers can leverage.

In Canada, the federal government has laid out a roadmap for legalizing cannabis finished products over the year or two ahead. It will certainly take time for Health Canada to draft appropriate regulations, but the path has been paved by current legislation. Even though adult-use cannabis sales will be federally legal this summer (or shortly thereafter), manufacturing cannabis finished products for sale won’t be an option until likely late 2019. However, Canadian producers can get a head start on developing this technology in 2018, by partnering with Californian producers with the know-how.

Cannabis Compliance Inc is actively servicing both the Canadian and Californian markets, and bringing producers together. The larger, longer-term opportunity for Californian producers is the global market, however. Unlike the United States, Canada has a legal framework for exporting cannabis finished products to other legal markets around the world. A producer in California cannot export any cannabis products from the United States to international markets; however, they could manufacture their branded products in Canada and export globally from Canada. In effect, Canada is poised to be the staging ground for US producers to reach the global market.

Cannabis Compliance Inc is the largest, most qualified consulting firm in the global cannabis industry. For more information on partnering with Californian or Canadian producers, please contact me at michael@cannabiscomplianceinc.com.