The federal government introduced the Cannabis Act (Bill C-45) on April 13, 2017, to legalize and regulate the production, distribution, sale and possession of cannabis in Canada. If the Cannabis Act is passed, adults will be able to legally possess and use cannabis subject to the legislated restrictions. Although legislation is yet to be enacted, details of the bill do shed some light on the road ahead for the entrepreneurs who have recently entered or are thinking of entering the untapped cannabis market. That includes those already operating at varying levels of legality, from the licensed producers responsible for growing and supplying medical marijuana to several dispensary owners currently operating illegally in a number of Canadian cities.
The federal government says Canadians can expect a legal recreational market by July 1, 2018. There is enough evidence to suggest the federal government is happy with the current production model and will continue this going forward. With production regulated by the federal government, all hopeful producers would go through a strict application process. The provinces and territories would be responsible for retail and wholesale distribution, and will determine whether the distribution portion of the supply chain will be government-controlled or licensed to private sellers.
Cannabis legalization will open up significant new markets – and startups that get going now will be ready and waiting to take advantage of the increased demand. The Canadian economy doesn’t spawn an entirely new industry very often, and legal cannabis may well be the best ground-floor opportunity we’ve seen since the early days of the internet. While there are some established businesses in this niche already where medical cannabis has long been legal, this should not discourage others, as it’s still very much a growth market with plenty of opportunity.
Whether you are a business in the early stages of this growth market or are considering entering it, the revenue potential is significant and there is tremendous opportunity for Canadian businesses that do things right and work within the confines of the legislation. We are already seeing a Canadian cannabis market that features a variety of product and marketing opportunities, from a vast number of organizations focusing on all aspects from growing to processing to research and development (specifically around delivery systems and cannabinoids), and even pet products. There are also cannabis companies looking overseas to import cost-effective raw product, and some have already begun exporting their end products. As you can see, there is no shortage of ways to get into this market, which is estimated to grow to $21.8 billion by 2020.
In addition, the government has also made clear the intention is to foster an industry where small-scale “craft” or “artisanal” producers are able to participate among larger players. It recommends taking steps to avoid “the development of monopolies or large conglomerates.” Once legalized, the craft cannabis market could see further economic opportunities in the way that the craft beer and wine sectors have revitalized rural Canada.
In order to cut out the illicit cannabis market, supply and pricing (taxation included) will be key. The legal cannabis industry is still in its infancy stage, and having only about 25% of required production space, it still has a long way to go in order to meet the demand; some estimate it will be 2021 before supply meets the consumer demand for cannabis.
Working with several clients in this emerging industry, MNP has been watching very closely and will continue to help its clients understand the regulations and capitalize on emerging opportunities while minimizing the risks moving forward.
To learn more about this topic and how MNP can help, contact Glenn Fraser, CPA, CA, vice-president and national leader, food and beverage processing, at [email protected].
