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Cannabis edibles open a new frontier for Canadian entrepreneurs

Last October’s legalization of recreational cannabis brought opportunities and challenges to licensed producers (LPs) and future entrepreneurs who want to sell cultivated and edible products.
peter-guonew

Last October’s legalization of recreational cannabis brought opportunities and challenges to licensed producers (LPs) and future entrepreneurs who want to sell cultivated and edible products. If you’re thinking of starting an edibles venture – baked goods, beverages, chocolates, mints, vape cartridges, tinctures, gummies, etc. – here are some key considerations.

Health Canada’s emerging edibles regime is both a supportive and restrictive extension of last October’s legalization. There are more risks to navigate while pursuing opportunities in these consumer products. Of course, obtaining the right licence, while concurrently building production capabilities and product portfolios, will be critical.

Reliable testing, dosing and measurement are non-negotiable, as the requirement for labelling edibles and constituent ingredients will mirror requirements for food and pharmaceuticals. Canadian consumers demand that.

What is proposed is a low, 10-milligram THC limit per item. On the surface, this is a responsible go-low-and-slow approach. But it may result in unintended consequences, as recreational users who feel little to no effect with one or two pieces impatiently gobble a handful to get high. Industry experts question whether a low dose per piece will help or hinder safe consumption.

Low doses may necessitate excess packaging. There are also questions around how many edibles can be in a package and how safety is ensured for each unit.

Predictably higher costs to develop and ship excess packaging, on top of the actual cannabis edibles, will drive investment and pricing decisions.

Another effect of proposed packaging (white with warning labels), along with distribution and marketing restrictions, is that consumers may not have sufficient information for informed choices. This impedes an LP’s ability to link advertising to product and market share. More importantly, consumers’ ability to voice preferences may be stifled.

As a result, poor product iterations, along with ineffective changes to dosing, formulations, taste, etc., will occur.

As government tries to protect the public, a key balance is necessary to support the emergence of viable consumer-driven businesses.

Edibles entrepreneurs must understand the entire production cycle. Will you go it alone and obtain a Health Canada licence, and secure requisite infrastructure? Or can partnerships accelerate, if not leap-frog, and enhance investor capital and entrepreneurial energy?

Learning from October 2018, arguably too much attention and dollars were fixated on cultivation, and not enough on people, systems and activities to process, package and ship flower to the British Columbia Liquor Distribution Branch, and consumers. These issues still haunt the industry. They will not abate with the flood of edibles coming this fall.

While many think that building an edibles company is straightforward, securing inputs of cannabinoid extracts will be difficult. A successful chocolatier will not necessarily find success making THC-laced chocolates. Under current regulations, you cannot convert a chocolate-cookie line to a cannabis-cookie line under the same roof. Likewise, just because an LP grows great flower, it does not mean that it is equipped to add value to that biomass. Strong expertise and knowledge, in all areas, are vital and in short supply.

Compelling opportunities exist. As edibles entrepreneurs build out businesses, they should be mindful of regulatory, financial, production and consumer impacts. Securing funding, acquiring expertise, building partnerships and getting good advice will launch them into this new frontier. •

Peter Guo leads MNP’s enterprise risk services practice and MNP’s cannabis industry group for B.C., and is based in Vancouver. He provides strategic, risk management, consulting and assurance services to private and public organizations.