Legal marijuana is coming to Canada. Investors sense an opportunity.
- Canada will be the next country where marijuana will become legal by the end of this year.
- Its legalization will bring investors incredibly high sums.
Chesterville, Ontario – In garage-sized containers at one end of a secluded warehouse in a former Nestlé factory south of Ottawa, rows of marijuana plants stand side by side, bathed in supernatural light.
They belong to Hamed Asi, a businessman from Ontario, who calls it "vertical farming".
He has no knowledge of how to grow marijuana or any other plants. His other line of business is installing office furniture; cabinets, tables, and desk chairs at the opposite end of the warehouse.
This is a financial boom not seen since the dot-com mania of the late nineties swept through Canada. The legalization of recreational marijuana, planned for autumn, is not only a significant social change and public health challenge, but also a rare opportunity for entrepreneurs like Mr. Asi to be at the beginning of what they hope will become a multi-billion dollar industry.
Opportunity for Investors
Opportunities are emerging soon: marijuana growers have celebrated millions in investments, which have not yet shown profits, but have values measured in billions on stock exchanges. Cities like Chesterville in Ontario hope that marijuana will reverse economic decline. Former politicians and lawmakers who once opposed recreational marijuana legalization have now joined or founded companies to invest.
Some provincial governments predict that tax revenues from marijuana sales will help balance their budgets. And companies offering every service or product – from real estate to packaging – are waiting for action.
Mr. Asi's dreams of wealth grow in an old factory once full of Nesquik pallets transported in railway cars. Partner and operations manager at a company called I.D.P. Group, he acknowledges the risks associated with what has already become a highly competitive industry.
"We can't do it just because everyone else is doing it," he said in his office, which is unsurprisingly equipped with the latest office furniture. "Concerns? Yes, 100%. We see how good this sector can be if you do business correctly, but you must be really careful."
Prime Minister Justin Trudeau fired the first shot of the new Canadian gold rush this month by announcing that marijuana legalization will begin on October 17, months later than the original plan of July 1. But just as during the tech company mania, there are growing concerns that this boom could cause more disappointment than wealth.
Justin Trudeau's government portrayed recreational marijuana legalization – Canada has used medical marijuana since 2001 – as a way to eliminate the black market, not as a potential job creator or money maker for the government or investors. In fact, they promised that marijuana would be available, but under no circumstances would it be promoted.
As a result, the federal government will issue licenses to growers in Canada, and then provinces will decide how they will be sold to consumers. In some provinces, especially Alberta, the government is working with privately owned stores. Others, like Ontario and Quebec, will essentially adopt a government store system that has been used to sell alcohol since the end of prohibition.
According to recently published regulations, marijuana advertising and promotion will be strictly limited – as will be the production of Canadian marijuana manufacturers. Packaging must be uniform and plain, except for yellow health warning signs and small logos. Even baseball caps, shirts, and all other promotional items promoting marijuana will not be allowed.
Many large companies have their roots in the medical marijuana industry. But their styles have shifted.
Chuck Rifici, founder and former CEO of the company now called Canopy Growth (worth more than 8 billion Canadian dollars, the most valuable cannabis company in Canada), once tried to clean up the image and reputation of a marijuana processing company.
Mr. Rifici's company's shares once exceeded 1 billion Canadian dollars and are now worth just under 500 million dollars. However, their ability to increase profits does not mean they have the ability to earn money. In the first three months of this year, the company recorded a loss of more than 10 million Canadian dollars.
The future after October offers nothing but a promise of money, as cannabis begins to flow into stores and new markets, said Mr. Rifici.
Global Legalization?
"The rest of the world will also begin to legalize marijuana," he predicted. "So the urgency for me is to have people and the ability to be the first driving force in this new jurisdiction. I think one or two of the large multinational cannabis companies will be Canadian companies."
But before that, Rifici and his competitors must first figure out how to behave in the domestic market. "Marijuana regulations look somewhat silly or a bit over the line," Rifici said. "Over time, they will loosen up a bit. The industry will certainly push for this."
However, this pressure will meet strong resistance from the Canadian medical community, which has repeatedly pointed out the health risks of marijuana, especially for users under 25 years old.
Cam Battley, who once worked in the pharmaceutical industry and is now the chief corporate officer of Aurora Cannabis (market value: 5.6 billion Canadian dollars, loss in the first half of this year: 20 million dollars), acknowledges that the growing value of the cannabis business may not be justified in every case.
Sources:
Austen, Ian. "Legal Marijuana Is Coming to Canada. Investors Catch the Buzz." The New York Times, The New York Times, 8 July 2018, www.nytimes.com/2018/07/08/world/canada/canada-marijuana-businesses.html?rref=collection/timestopic/Marijuana and Medical Marijuanay.
Author: Ian Austen