Recreational cannabis will officially be legal in Canada as of October 17, 2018, according to Prime Minister Justin Trudeau. Investors are racing to cash in on what is going to be a massively innovative and lucrative business – a business that goes beyond simply growing and distributing the cannabis product.
Arcview Market Research and BDS Analytics predict that global spending on legal cannabis will hit $57 billion by 2027. One of the Canadian businesses at the forefront of the cannabis-centred industry right now is CROP Infrastructure Corp. CROP focuses on developing branding and setting up state-of-the-art infrastructure for the cannabis industry through investing, constructing and owning automated, light-supplemented greenhouse projects for lease and brand licence to licensed cannabis producers.
“What you have to understand with the cannabis industry is that as it evolves, it will become just like any agricultural product,” says CROP CEO and director Michael Yorke. “So, focusing on cost-saving opportunities like growing in specialized light-supplemented greenhouses will give tenant producers a low-cost advantage while maintaining quality.”
Much of its focus has been in the U.S., but the company has begun to give more attention to international markets, particularly in Europe. Most cannabis companies are largely still focused in the U.S. and Canada, so the opportunity in the European market is wide open.
Who is going to come out on top?
Cannabis companies have seen extreme growth and financial success in a very short amount of time.
“Many companies that were valued in the range of $5 [million] to $30 million in Canada are now $100-million to billion-dollar companies,” says Yorke. “So, we look at Canada as a business case for investment elsewhere in the world. History often repeats itself.”
Canadians have a head start in the growing industry with legislation only months away. But exporting around the world poses a few problems. Logistically, shipping products all over the world is going to increase the cost of production.
Climate-wise, other than the West Coast of British Columbia, Canada typically has a less desirable environment for the production of cannabis. Growers who have to pay to cool their cannabis product in the summer and heat the product in the winter see an increase in the cost of production.
Because cannabis is a high-demand agricultural product with a medical focus, not being cost conscious can pose real problems to a business down the line. This makes locations like Europe and the U.S. – where labour is typically cheaper or climate is typically more favourable – extremely attractive to CROP and investors.
“The companies that survive will be those that can adapt to the cost wars effectively,” says Yorke.
While the current political climate in the U.S. makes the future of cannabis legalization unclear, there is a base for significant impact and partnerships.
“If you look at Canada early on, there were 30,000 licensed users as a basis for multiple public companies that would mount billion-dollar valuations,” says Yorke. “If you look at Washington, there are roughly 600,000 recreational users. California – the sixth-largest economy in the world – has roughly four million cannabis users. A recent Gallup poll suggests 13%, or one in eight, of U.S. residents use some form of cannabis, which is larger than the entire population of Canada.”
Businesses like CROP are preparing themselves for the massive international boom in the cannabis industry by focusing on infrastructure in coastal states that will become future export hubs for the rest of the U.S.
Going global, building brands
CROP has around 15 brands in the United States and is developing in Europe but not in Canada.
“Where Canada falls short – despite having the most highly valued companies in the world – is that they aren’t letting companies establish brands,” says Yorke.
Not allowing companies to create brand loyalty from consumers hinders companies’ ability to mature and see groups become mainstay household names. Meanwhile, the U.S. has created a more capitalist business where brands can be developed, and ambassadors and celebrities can get behind a brand or product.
One of CROP’s partners is Yield Growth Corp. – a Vancouver-based wellness company – which has developed a unique line of 55 cannabis-infused products. CROP has the exclusive rights to distribute those products in Italy, and Yield hopes to make a name for itself as a top brand in the cannabis industry.
Italy is an ideal partner for Yield and CROP because of its focus on cannabidiol (CBD) products and its proactive attitude towards cosmetics. Yield products often incorporate CBD, a more medical-focused cannabis product.
Time to invest
Investors who invested early in the Canadian cannabis sector have mostly done very well. Overlooked were the opportunities in Europe and in the United States. While other firms were looking at the highly competitive Canadian sector, CROP began looking elsewhere.
Many cannabis-centred companies have yet to treat their business like a real business, rather than a speculative market, says Yorke.
“It will come down to the people that have the infrastructure and logistics strategically placed that will hold the dominant places in the market,” says Yorke.
CROP has seen that the baby boomer generation – who were coming of age in the ’60s – have been keen on investing in infrastructure and cannabis-growing companies. Millennial investors are also becoming more common.
“The generation of today are really just beginning to invest in the stock market,” says Yorke. “We see a full spectrum of investors, from those that are speculative to more seasoned investors.”
The cannabis movement is a medical, recreational and global phenomenon, says Yorke.
“If you look back on history – at the outcome of Prohibition – the companies that were able to establish themselves early on are the staple household names today,” says Yorke. “I look at this industry as one of the most significant opportunities of a generation.”
