With Canada’s legalization of marijuana, the food and beverage industry is racing to join the craze for cannabis-infused food products that include beer, nonalcoholic drinks, and even cookies. This write-up discusses the impact of the new legalization, the new players in the recreational cannabis market, the current regulatory framework, and future outlooks.
Bill C-45 Legalization of Cannabis:
On October 17, 2018, the Cannabis Act (Bill C-45) came into effect, and a regulatory framework for controlling the manufacture, distribution, sale, and possession of legal cannabis in Canada was implemented. According to the bill, adults “can possess up to 30 grams of dried or equivalent non-dried form in public.” Adults are also allowed to make cannabis-infused food and drinks “provided that dangerous organic solvents are not used in making them.” The marijuana bill allows each household to grow up to four cannabis plants from Canadian licensed producers (LPs), although Quebec and Manitoba chose to be excluded from this aspect of the legislation. Each Canadian province will set its own procedures for retail sales, and these procedures can vary. All retail ownerships have a choice to sell their legal products online. Canadians traveling within the nation, but not internationally, are permitted to carry up to 30 grams of cannabis. However, driving under the influence of legal cannabis is illegal.
Food and beverages industry in the mix:
The legalization of cannabis in Canada has piqued the interest of various Canadian food and beverage companies. An early entry into the Canadian market is Molson Coors Brewing Company, which created a joint venture with the Hydropothecary Corporation (HEXO) to develop nonalcoholic cannabis-infused beverages through a new company called Truss. Market estimates suggest that the Canadian recreational cannabis industry could be valued anywhere between $7 billion and $10 billion, with about 20 to 30 percent of the revenue generated from cannabis-infused, nonalcoholic beverages. A conservative low-end estimate projects that this beverage segment could be worth approximately $1.5 billion!
This lucrative and growing market has attracted the attention of various key players. A list of a few key movers and shakers includes:
- Constellation Brands, the owner of the well-known Corona beer, bought a stake in Canadian pot producer Canopy Growth.
- Cigarette maker Imperial Brands took an equity stake in closely held Oxford Cannabinoid Technologies.
- Toronto-based Xanthic Biopharma has developed a process that transforms cannabis into a powder. The company is working with various LPs to make products such as drinks infused with THC.
- Pivot Pharmaceuticals has signed an agreement with Cartagena, a subsidiary of Mexico-based Licorera Del Sur, to develop and commercialize cannabis-infused, nonalcoholic beverages using Pivot’s patented, water-soluble powdered cannabis technologies in combination with Cartagena’s fine spirits and flavored extract formulations.
- reTreat Edibles from Calgary is planning to sell cannabis-infused brownie and cookie mixes. The company is also looking to create flavors that bring out the special tastes and smells of different cannabis strains.
Complicated regulatory framework:
With 14 specific regulatory frameworks in the Cannabis Act involving ten provinces, three territories and the federal laws, developing a compliance program on this scale will be extremely complicated. Given the multiple regulatory jurisdictions, there is an added risk that different interpretations will be drawn on the legality of LPs and by the beverage manufacturers targeting expansion of their businesses. For example, a few Canadian LPs are exploring opportunities in several U.S. states where there has been a move to legalize cannabis. However, cannabis remains illegal in the United States at the federal level.
Indeed, many beverage companies are already finding that the regulatory framework of legalization is difficult to navigate. For example, Province Brands, a Toronto-based company brewing beer from marijuana, has noticed that the Canadian law prohibits them from doing taste tests.
According to Dooma Wendschuh, a co-founder of the company, “If I wanted to open an ice cream parlor, I could just open it. If I wanted to make a new flavor of ice cream, I could just make it. If I want to make a marijuana beverage, I can make it, but no one is allowed to drink it.”
Risks and public health implications:
There are many questions concerning the long-term effects of cannabis use as well as the expectations that the appropriate testing, tracking, and education will be in place because of the Cannabis Act’s introduction. Research and clinical data has shown that cannabis can have long-term detrimental effects if used by adolescents, impairing healthy cognitive development. With legalization in force while there are potential harms, the federal and provincial governments need to place health considerations at the forefront and adopt a public health approach to mitigate those potential harms.
Future Directions:
As more companies enter the Canadian market introducing an array of cannabis-infused products, a major challenge will be handling and reacting to the culture evolving around legal recreational cannabis. Robust regulatory enforcement will be extremely important as the industry matures. Preparing the regulatory infrastructure to prevent underage consumption, promote moderation, and prohibit impaired driving, as well as ensuring addiction control, is necessary. The supply and demand gap will determine the ability for the black market to continue or thrive. However, accessibility, pricing, and product differentiation will also be key drivers in this industry. Cannabis-related tourism is also a concern for legalization, particularly given Canada’s proximity to the United States. Currently, most U.S. border states are under prohibition. However, there is a potential for increase in illegal trafficking and cannabis-driven tourism across the border.
