Go North, Young Person: The Canadian Green Rush Is On

According to a recent report analyzing the cannabis investment sector, Canada’s currently-licensed growers are in line to benefit from the relatively swift move to recreational use pledged by Liberal Prime Minister Justin Trudeau’s new majority government.

“I speculate the government will use Health Canada’s licensed growers as a path to broadening access to marijuana,” wrote Dr. Luc Duchesne in an Investor Intel report. “If such is the case, then we look forward to a significant market explosion.”

Duchesne isn’t the only one to foresee an early advantage to companies already established in the medicinal marijuana industry. Aaron Salz, an analyst with Dundee Capital Markets in Toronto, told Bloomberg News that while a framework for adult use may still be two years away, the adult use market could be worth up to C$5 billion annually and companies with the medicinal foothold would have the first edge.

Health Canada has not been quick to grant licensures, Kash Heed told the Vancouver Sun in August. Heed, himself a former police chief and province solicitor general, consults with National Green BioMed, which  was waiting word on its application status for a growing license.

“The board of directors and people in key positions need to be squeaky clean,” Heed says, advising other frustrated license applicants.

Another former Canadian government official, former B.C. premier Mike Harcourt, reported waiting for final approval from Health Canada after his company, True Leaf Medicine, Inc., submitted 1,500 pages of information with its application.

Although Health Canada makes it difficult to get in the door for licensure, once past that hurdle, the picture becomes much brighter. When recreational use is fully legal, demand will likely dwarf current production rates.

According to Duchesne’s analysis – which may incorrectly assume an equal 1.1 gram per day consumption rate as currently reported across medicinal consumers – if 10 percent of Canadians use recreational and medical at that same rate, the existing production rates would be able to meet 0.62 percent of demand, less than even one full percent.

Duchesne’s further concluded, based upon such an assumed consumption rate and an assumed sales rate of $5 per gram, that the legal Canadian cannabis market would be worth over C$7 billion annually, and worth C$499 million annually in taxes at 7 percent.

That explains why companies either applying for licenses or those with existing licenses are readying for expansion. Canadian DelShen Therapeutics Corp. is spending C$8 million on a former state-owned tree farm in Ontario, retrofitting the facility to grow medical marijuana. The 40,000-square feet size of the facility is predicted to produce 28,660 pounds of medical cannabis per year, and generate C$21 million in first-year sales.

Alta Vista Ventures Ltd.’s recent acquisitions in the cannabis space also signal that medical cannabis growers with licenses or in those in line for licensure are set for explosive growth. Several weeks ago, it purchased RedeCan Pharm, one of Ontario’s currently licensed growers, for C$9.5 million. In addition, it bought Thor Pharma Ltd., whose pending application with Health Canada would allow it to produce up to 10,000,000 dried grams (over 22,000 pounds) per year in its 55,000-square foot cultivation area.

When the legal market for recreational cannabis opens, among those who stand to profit most is Canopy Growth CEO Bruce Linton. Canopy Growth is essentially the biggest medical marijuana grower in Canada, as it’s the umbrella company that owns Bedrocan and Tweed, two major licensed growers.

Unsurprisingly, Linton is ready to open the market right away.

“Canada is probably the most orderly place on the planet in which medical marijuana is available,” he observed. “I think they’re going to get [recreational legalization] done, and get it done very quickly.”

Linton credits the unexpected recent federal election result of Trudeau’s Liberals winning an outright majority of seats, as opposed to a leading minority that would require greater negotiation, for the rapidly brightening prospects in the market.

“The runup and the excitement for all of us was: ‘Is it going to be a minority?’ And when it was a majority, it was almost like you felt you should have gone to bed earlier because we have a lot of work to get done right now.”

What do you think? Will you be watching Canadian legalization closely?