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Canada just legalized pot. Who could profit?



Recreational marijuana in Canada became legal on Wednesday, opening a new multi-billion dollar cannabis market to businesses and investors.

The move will likely have important economic implications for the global cannabis industry, as companies demand to grab a share of sales and experiments in what is only the second country in the world to legalize recreational marijuana.

Uruguay has legalized cannabis nationwide last year, but it is a much smaller investment market than Canada. Uruguay has a population of only 3.4 million and a national gross domestic product of $ 56.2 billion, according to the World Bank, while Canada has a population of 36 million and a GDP of $ 1.7 trillion .

"Many countries are going to be looking at Canada and their ability to make this a success," said Colin Busby, director of research at the Canadian Institute for Public Policy Research. "There will always be an economic incentive for governments to get involved in this, given the size of the market."

This economic incentive, for businesses and the government, will come in the form of revenues, jobs and taxes, including income, sales and excise

But many investment analysts warn against the potential surplus of market, arguing that Canada's economy is still relatively small compared to countries like the United States, where 30 states have legalized medical marijuana and another nine, plus the District of Columbia, have legalized its recreational use. And they say that stringent regulations in both Canada and the United States could limit market growth for years to come.

Here's what the marijuana market experts say in Canada and beyond.

What does the new law do?

Canadians who are 1

8 or older may now hold up to 30 grams of legal cannabis in public and may purchase dried, fresh or oiled cannabis from an authorized retailer. Beyond that, many of the regulations vary because exactly how cannabis is bought and sold is left in every Canadian province.

As of Wednesday, 132 licenses to produce or sell marijuana have been issued, with hundreds of other applications waiting to be processed. A survey by the Associated Press revealed the opening of 109 new marijuana shops.

Canada is still restricting vaping pens and concentrated THC, the psychoactive chemical substance of cannabis that increases users, for at least a year. The Canadian health department said it needs more time to study the health effects of these products.

How big is the Canadian market?

Canada already has a consolidated market for medical marijuana, which is legal in the country since 2001. The illegal use of the substance has also increased in the last decade.

A total of 4.7 million Canadians, equal to 18% of the population aged 15 and over, used marijuana in the last year, both for recreational purposes and for medical purposes, according to a 2017 survey by National Statistics Agency of Canada. (In comparison, 9.5% of the adult American population, or about 30 million people, said they had used the pot in the last year, according to data from the National Institutes of Health.)

  A worker collects cuttings from a marijuana plant at the Canopy Growth Corporation plant in Smiths Falls, Ontario. Canopy Growth is the largest publicly traded cannabis company in the world. Photo by Chris Wattie / Reuters

A worker collects cuttings from a marijuana plant at the Canopy Growth Corporation plant in Smiths Falls, Ontario. Canopy Growth is the largest publicly traded cannabis company in the world. Photo by Chris Wattie / Reuters

Canadian statistics Canadian estimates spend about $ 4.4 billion annually on cannabis. Of this, only $ 570 million was spent on legal medical marijuana in 2017, according to The Arcview Group. But as more and more Canadians move from illicit to legal markets, the research firm predicts that the number will rise to $ 1.3 billion in 2018 and $ 5.5 billion by 2022.

So, though probably there will not be a significant increase in the number of Canadians who use cannabis, they will buy it legally – and this means tax revenue for the Canadian government. Estimates put the potential tax revenue at $ 1 billion. In the United States, states that have legalized recreational marijuana have generated hundreds of millions of tax dollars.

Although the use of medical and recreational marijuana is still illegal at the federal level, the US marijuana market was $ 8.5 billion in 2017 and is expected to grow to $ 23.4 billion by 2022 , according to The Arcview Group.

Pros and Cons for Investors

The relatively small Canadian marijuana market has not stopped investors from flooding. The stocks of Canadian cannabis companies have skyrocketed in recent months as investors prepare for a peak in demand, and hopefully profits.

But some industry observers warn that companies should not go too far from themselves – for a reason, due to restrictions on things like vaping pens and concentrated THC.

"This is why we are less optimistic about Canada's growth than we have seen in Colorado, Washington and Oregon, where a much freer approach to the market has led to an explosion of growth from start-ups. up, "said Tom Adams, managing director of the market research firm on cannabis BDS Analytics.

playing the long game when it comes to pot, betting that the rules will loosen over time.

Molson Coors Brewing Co. announced at the beginning of the year that it would develop cannabis-infused drinks in Canada. Constellation Brands, Corona's parent company, has purchased $ 4 billion in Canopy Growth, a cannabis maker that already has a number of products on the market and is a major player in the marijuana industry Canadian.

Part of this investment could be more on alcohol companies that cover their potential losses to cannabis. Research shows that consumers usually exchange a controlled substance for the other when they decide how to spend their discretionary income

"It's quite rational, if you have $ 20 to spend on a Friday night business, if you're in that recreational market, the demand is reduced to what you're going to consume, "said Busby, a public policy researcher.

Who has the upper hand?

Canada and the United States are not exactly competitors in the marijuana industry because the regulations keep the two markets isolated. But companies are already looking for ways to broaden their horizons, thinking of a world in which they can compete freely across borders.

Cura, an Oregon-based cannabis oil company, announced at the start of this year of entering the Canadian medical marijuana market. Kush Bottles, based in California, which supplies packaging and cannabis accessories, has launched a branch in Toronto at the start of this year.

These companies will likely find themselves in tough competition with established Canadian companies. But US companies that already produce special marijuana products, such as vaping pen and edibles, on a large scale could have a "first mover" advantage in Canada if that country loosens restrictions on such products in the future.

  on crossing international borders with cannabis is seen at Ottawa International Airport. Because marijuana is still illegal at the federal level in the United States, Canadian and US markets are still widely divided. Photo by Chris Wattie / Reuters

At Ottawa International Airport, there is a sign that warns travelers to cross international borders with cannabis. Because marijuana is still illegal at the federal level in the United States, Canadian and US markets are still widely divided. Photo by Chris Wattie / Reuters

Canadian companies are also on the move. Canopy Growth has announced it has purchased a Colorado-based research and development company called ebbu as a way to develop "new large-scale cannabinoids".

Canadian companies also have a distinct advantage when it comes to raising capital. They can obtain bank loans in Canada more easily than their US counterparts and can be listed on the Canadian stock exchange. (Some US companies are now trying to enter the Canadian stock exchange.) Canopy Growth is the largest publicly traded marijuana company, valued at over $ 13 billion.

Other US companies can take comfort from the fact that, at least for now, Canadian companies can not sell their products in the United States or elsewhere outside of Canada.

"They have all this capital and have no place to send it," said Micah Tapman, the managing director of Canopy Ventures, a non-connected venture capital fund based in Colorado. This means, for now, "there is no global market to talk about," he added.


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