Pot frenzy could end very badly in Canada

Skep­tics won­der if in­dus­try grow­ing too fast, if there’s been over­es­ti­ma­tion of de­mand for le­gal mar­i­juana

The Hamilton Spectator - - BUSINESS - JEN SKERRITT Bloomberg

There’s one bum­mer ques­tion haunt­ing all the mar­i­juana busi­nesses pop­ping up be­tween Bri­tish Columbia and New­found­land.

How much do Canucks like weed, eh?

A year be­fore recre­ational cannabis is ex­pected to be­come le­gal in Canada, there’s an ex­plo­sion in com­pa­nies cul­ti­vat­ing the stuff. At least 10 mar­i­juana out­fits have new list­ings this year on the TSX Ven­ture Ex­change and Canada Se­cu­ri­ties Ex­change.

Some 51 en­ter­prises have got­ten the green light to grow pot, and 815 ap­pli­cants are in the queue. All told, it could be enough to raise the coun­try’s raw-weed out­put more than ten­fold.

This is where skep­tics see froth. “If you ask peo­ple to­day why they don’t use, it’s a small per­cent­age who say ‘be­cause it’s il­le­gal,”’ said Neil Boyd, a crim­i­nol­o­gist at Simon Fraser Univer­sity in Van­cou­ver. “In many re­spects there might be an over­es­ti­ma­tion of de­mand.”

Long­time users and grow­ers in­sist he’s wrong, but in­vestors aren’t so sure. Pro­ducer Me­dReleaf Corp. tum­bled as much as 28 per cent last month in the worst de­but for a Cana­dian IPO in 16 years amid con­cern pot stocks are over­val­ued. Shares of Canopy Growth Corp., the coun­try’s first bil­lion dol­lar mar­i­juana start-up, are down 21 per cent in the past three months.

The North Amer­i­can Med­i­cal Mar­i­juana Index, which tracks lead­ing cannabis stocks in the U.S. and Canada, has plunged 21 per cent since Prime Min­is­ter Justin Trudeau’s govern­ment in April un­veiled its plan to le­gal­ize the drug by next July.

Of course, some of the de­cline may be at­trib­uted to the sit­u­a­tion in the U.S. Many in the Trump ad­min­is­tra­tion, At­tor­ney Gen­eral Jeff Ses­sions in par­tic­u­lar, are no friends to the in­dus­try. For Cana­dian com­pa­nies, the risk isn’t po­lit­i­cal.

“There seems to be a lit­tle bit of in­vestor fa­tigue,” said PI Fi­nan­cial Corp. an­a­lyst Ja­son Zand­berg. He said they’re hav­ing trou­ble dif­fer­en­ti­at­ing be­tween the pro­duc­ers, new and old, and what might give them com­pet­i­tive ad­van­tages.

That’s to be ex­pected, ac­cord­ing to mar­i­juana bulls, in a brand-new mar­ket that hasn’t even ar­rived yet. Par­lia­ment still has to pass the recre­ational law (though there’s lit­tle ques­tion it’ll do so). Then the fed­eral govern­ment will have to write rules on tax­a­tion, and each prov­ince will have to de­cide how to reg­u­late dis­tri­bu­tion.

“Noth­ing is go­ing to be per­fect right off the hop,” said Jon Bent, a li­censed med­i­cal mar­i­juana grower who has been cul­ti­vat­ing plants out­side Win­nipeg for five years. “It’s baby steps — and the in­dus­try is mov­ing quickly.”

The ques­tion is whether it’s go­ing too quickly, con­sid­er­ing the va­ri­ety of es­ti­mates about how much recre­ational weed Cana­di­ans will end up reg­u­larly in­gest­ing. Some ed­u­cated guesses are that about 15 per cent of Cana­di­ans par­take now, le­gally and oth­er­wise. That’s around 5.4 mil­lion peo­ple.

One pro­jec­tion, from the Cana­dian Par­lia­men­tary Bud­get Of­fi­cer, is that 4.6 mil­lion peo­ple age 15 and over will use cannabis at least once and con­sume 655,000 kilo­grams next year, and that 5.2 mil­lion will be do­ing so by 2021.

Other re­ports peg fu­ture recre­ational con­sump­tion at 420,000 kilo­grams a year with sales reach­ing $6 bil­lion by 2021, Canac­cord Ge­nu­ity Group said in Novem­ber. For its part, the govern­ment agency Health Canada an­tic­i­pates a ma­ture med­i­cal mar­i­juana mar­ket will be around $1.3 bil­lion.

That could un­der­es­ti­mate the num­ber of Cana­di­ans who will refuse to buy from cor­po­rate weed grow­ers, said Chad Jack­ett, 38, who runs a med­i­cal mar­i­juana dis­pen­sary in Squamish, Bri­tish Columbia, and uses cannabis oil ev­ery­day to treat nerve pain.

His con­cern is that new reg­u­la­tions will side­line the in­de­pen­dent farm­ers who ad­vo­cated for the plant for years, and grow small amounts.

“I will def­i­nitely not be us­ing any­thing” from one of the big out­fits, Jack­ett said.

“If I don’t have enough of my own then I’ll be get­ting it from some­body else whom I trust.”


A sign stands out­side Rain­for­est Farms, a re­tail mar­i­juana shop in down­town Juneau, Alaska

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