CRUNCH TIME FOR CANNABIS
THE RACE IS ON AMONG PRODUCERS TO HAVE HOUSES IN ORDER WITH LEGALIZATION AT HAND
Canada’s marijuana companies have entered a makeor-break period, where logistics could matter as much as the product itself in determining who will be the biggest winners to come out of legalization.
Though the Senate’s historic passing of the Cannabis Act Tuesday night means Royal Assent is expected within days, Prime Minister Justin Trudeau said Wednesday that legal cannabis sales won’t begin until Oct. 17.
That gives companies just over four months to get their houses in order and their products to provincial wholesalers and government and private retailers.
“Provinces are now doing their due diligence and coming by our facilities and making sure that we can actually grow, we actually have product,” said Brad Rogers, president of CannTrust Holdings Inc.
Only Quebec, New Brunswick and Prince Edward Island have signed supply agreements with cannabis companies. But other provinces, including Ontario, are finalizing their product calls, determining what companies can provide what products and at what volumes.
“They’ve been really interested in … making sure that we can actually supply in a way that they are used to having supply, because taping up a box and shipping it out is very different than shipping pallets to a (distribution centre),” Rogers said.
Once it becomes a mainstream regulated industry — and marijuana itself becomes an agricultural commodity — order management, shipping, branding and product development will be more important skills than growing itself, said Rogers.
That’s not to say producing and stockpiling product over the coming months isn’t essential.
Most industry watchers predict a significant shortage in the first months of legal recreational sales; only companies able to fulfil their promises to large government buyers like the Ontario Cannabis Store, a subsidiary the Liquor Control Board of Ontario, or the Societé Québécoise du Cannabis, a subsidiary of the Société des alcools du Québec, are likely to retain shelf space.
“And then how quickly will the next order sell out? Five days?” said Canopy
Growth Corp.’s chief executive Bruce Linton.
“So the real question is going to be which companies have the depth of production capacity and inventory creation abilities to actually handle charging the system three or four or five times.” This was echoed by Aphria Inc.’s chief executive Vic Neufeld, who said he’s skeptical about many other publicly traded cannabis companies’ ability to execute on their promises to large-scale buyers.
“It’s not that easy to start a greenhouse in December of 2017 and have it capable of production in December of 2018,” said Neufeld.
“Within 12 months, by September of 2019 ... there will be a shake-out … (where provincial buyers will) come to me and say, ‘Vic, I’ve got these three brands, underperforming, no consistent supply, and the price points are too high, what can you provide me to ... replace it.’ ”
Along with stockpiling and shipping, the next four months will see a shift in how cannabis companies are trying to market themselves. Over the past year, in the lead-up to Trudeau’s longpromised recreational legalization, cannabis companies have made the most of hazy rules around branding to sponsor festivals and concerts or line up thinly veiled celebrity endorsements.
That will end as soon as the new regulations — banning lifestyle advertising, festival sponsorship and even in-store claims about product effects — come into force, shortly after Royal assent.
“If you haven’t created a brand, it’s going to be nearly impossible to do so,” said Linton, adding that “we’re going to land somewhere between cigarettes and alcohol,” when it comes to branding.
Although end consumers may be increasingly difficult to reach, armies of salespeople will still be roaming the country this summer to secure the best shelf space.
“You need educators, you need communicators, you need merchandisers,” said Neufeld, whose company recently announced a deal with the Canadian arm of alcohol distributor Southern Glazer’s Wine and Spirits to run Aphria’s salesforce. “You need feet on the street that go door to door, brick and mortar, and truly be there to present your face.”
To start, the only products available will be dried cannabis bud, loose or in pre-rolled joints, and cannabis oil, either in bottles or capsules.
The government has committed to legalizing edibles within 12 months of the Cannabis Act coming into force.