U.S. Cannabis Producers Fear Canada Will 'Dominate The Industry'
Daniel Tencer
1 hour ago
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An employee collects cuttings from cannabis plants at Hexo Corp's
facilities in Gatineau, Que.
Derek
Peterson is worried about Canadian weed.
The
CEO of California-based marijuana producer and seller Terra Tech is
watching the cannabis industry boom north of the border with more
than a little apprehension — because he is already seeing the
beginnings of an invasion of U.S. markets by Canada's cannabis
firms, today the world's largest.
"The
concern for some of the players is the market will be dominated by
Canadian companies, shareholders and banks if we allow too much
time to pass," Peterson said by phone from California.
With
Canada set to legalize recreational marijuana on Oct. 17, Canadian
cannabis stock prices have soared, giving these startup firms
enormous amounts of money with which to invest in their business.
Meanwhile,
U.S. companies, encumbered by the country's continuing federal
prohibition, aren't seeing nearly the sorts of valuations Canadian
companies are seeing.
"They
who have capital get to soak up market share," Peterson said,
adding that Canadian companies are "capitalizing themselves
extremely well and doing arms'-length investments in U.S. markets,
locking down branding opportunities and buying players."
Peterson
figures the U.S. has only a few years to "get its act
together" and reform marijuana laws at the federal level, or
Canadian companies stand to win the game.
"If
we don't see something happen in 2019, almost all of us will be
takeout targets for Canadian players," he said.
There's
a lot at stake. One recent estimate suggested the U.S. marijuana
market could be worth about US$90 billion a year if it were
legalized across the country. These forecasts tend to vary widely,
but it's clear that giant green fortunes stand to be made.
Cam
Battley, chief corporate officer at Edmonton-based Aurora Cannabis,
thinks there's nothing wrong with Canada being the one to make
those fortunes.
"When
was the last time Canada got to lead the creation of a new industry
worldwide?" he asked by phone from Berlin.
"As
much as I absolutely love the United States ... I don't think
there's any law that says the U.S. has to dominate every new
industry in the world."
In
the past year, Aurora's stock price has quadrupled as investors
anticipate a major boom in revenue after Canadian legalization.
That and its takeover of rival MedReleaf earlier this year has made
it the world's largest cannabis company, valued at more than $11
billion.
Earlier
on HuffPost Canada:
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Battley
calls Canada's leading role in cannabis an "accidental success
story," one that started with the country's Supreme Court
forcing the federal government in 2001 to create a mechanism for
medical marijuana patients to access the herb legally.
The
government of the time "did something smart," Battley
says — it instituted a licencing system for private marijuana
producers, which created a competitive environment for medical
cannabis. This was the seed of today's booming industry, Battley
says.
And
today, with the Liberal government legalizing recreational
marijuana at the federal level, the world is watching to see what
the results will be.
"I
would say the world trusts Canada to be the leader on this. We're
not known for being wild and crazy. We're known for being very good
at public policy."
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Aurora Cannabis chief corporate officer Cam Battley in Vancouver,
B.C., Fri. Jan. 27, 2017.
Aurora's
own business plans show just how internationally-focused the
Canadian industry has become. Battley boasts the company has
established footholds "on five continents" and in 18
countries where medical cannabis is legal, and further expansion is
on the way.
He's
convinced Canada will lead the world in the cannabis industry,
which he believes will be larger than the beer industry, once it's
fully matured and includes things such as edibles and cannabis
drinks.
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But
when it comes to the U.S., a Canadian invasion may not be so easy
to pull off.
While
nine U.S. states have legalized recreational cannabis and many more
allow medicinal marijuana, it remains illegal at the federal level.
Cannabis producers can't ship product across state lines, or access
financing from major banks. The current White House has expressed
hostility towards the industry. U.S. border officials are
reportedly giving cannabis execs a hard time.
Faced
with that reality, Aurora is actually distancing itself from the
U.S. industry. It spun off its U.S. holdings into a separate
company earlier this month, and Battley stressed his company does
not have "any U.S. operations or assets right now."
For
publicly traded cannabis firms, it's crucial to avoid the
perception that they may be involved in an illegal activity in any
jurisdiction.
But
Aurora's not abandoning all hope — it has a deal in place with
the U.S. business it spun off, allowing it to buy back in if
cannabis is legalized in the U.S. in the next 10 years.
So
the Canadian invasion of American marijuana may not be quite as
imminent as some think. And some observers say it's a mistake to
count the U.S. industry out.
"I
would never bet against the U.S. in terms of their ability to catch
up," said Mark Whitmore, vice-chair and global leader for
consultancy Deloitte Private.
A
'global megatrend'
While
Whitmore holds a bullish view of the Canadian industry — he was
behind a 2016 report estimating legal cannabis would be worth $22
billion a year to Canada's economy after legalization — he is
also optimistic about the U.S.
He
noted that California, which has legalized marijuana, "is as
large a market on its own as Canada. It's always had an innovative
and progressive economy."
And
he cited a common adage heard in the global investor community:
Anyone who has bet against the U.S. in the past few centuries has
lost.
But
he notes that it all depends on how the political situation will
evolve. "The big question mark still is where does the U.S. go
on the whole topic of cannabis?"
In
the meantime, Canada will be "leading a global megatrend,"
Battley said.
"Thus
far we've done very well at getting it right. I think we're going
to change the world in a very positive way."
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