How can the nascent cannabis in­dus­try avoid the Black­Berry curse?

The Globe and Mail (Prairie Edition) - - LEADING EDGE - CHRIS ATCHISON

Le­gal­iza­tion could of­fer a chance to fi­nally dom­i­nate a global in­dus­try long term

First it was Nor­tel Net­works Corp., then Re­search in Mo­tion Ltd. – two be­he­moths that ex­em­plify re­cent Cana­dian brushes with global in­dus­trial dom­i­nance.

Both com­pa­nies spawned sup­port ecosys­tems, led the way in re­search and de­vel­op­ment and seemed in­de­struc­tible – re­mem­ber when the Black­Berry was the busi­ness com­mu­nity’s smart­phone of choice? – un­til both saw their com­pet­i­tive ad­van­tage quickly erode.

In­deed, it would be easy to char­ac­ter­ize Canada as the boxer who “could have been a con­tender,” and was, only to lose its crown in key sec­tors as more dy­namic in­no­va­tors emerged to over­power our most promis­ing play­ers.

Then along came le­gal­ized cannabis.

While li­censed pro­duc­ers in this coun­try have al­ready es­tab­lished their lead­er­ship in med­i­cal mar­i­juana pro­duc­tion, in less than a week Canada will be­come one of the few coun­tries in the world to de­crim­i­nal­ize cannabis for recre­ational use. The growth po­ten­tial could be ex­po­nen­tial.

Cana­di­ans spent about $5.6bil­lion on cannabis last year, ac­cord­ing to Sta­tis­tics Canada, while a re­cent anal­y­sis by the Cana­dian Im­pe­rial Bank of Com­merce pre­dicted sales could reach $6.5-bil­lion by 2020, ex­ceed­ing the sum we spend on spir­its each year.

Could cannabis be Canada’s chance to fi­nally dom­i­nate an in­dus­try over the long term? The sec­tor may be in its in­fancy, but an in­flux of top ex­ec­u­tive tal­ent from ma­ture global in­dus­tries, not to men­tion in­vest­ments from out­side the cannabis busi­ness, bode well for Cana­dian pro­duc­ers.

This year, for ex­am­ple, the al­co­holic bev­er­age pro­ducer Con­stel­la­tion Brands Inc. – owner of the Corona and Kim Craw­ford la­bels – an­nounced it would make a multi­bil­lion-dol­lar in­vest­ment in Smiths Falls, Ont., cannabis firm Canopy Growth Corp. At­lantabased soft-drink gi­ant Coca-Cola Co. is re­port­edly in talks with Ed­mon­ton’s Aurora Cannabis Inc. to de­velop a bev­er­age in­fused with cannabid­iol (CBD).

So, how can the do­mes­tic cannabis in­dus­try avoid the pit­falls that com­pro­mised the long-term suc­cess of other Cana­dian cor­po­rate suc­cess sto­ries? In­dus­try play­ers and watch­ers of­fer their take on what pro­duc­ers can do next to be­come global pow­er­houses.

CAM BAT­T­LEY, AURORA CANNABIS I NC.’ S CHIEF COR­PO­RATE OF­FI­CER, ON WHY SPEED TO MAR­KET I S SO CRIT­I­CAL

“Be­cause cannabis re­mains il­le­gal on a fed­eral level in the United States, we have a lead, and I don’t know how long that win­dow of op­por­tu­nity will re­main open. Re­mem­ber, it could change with a sin­gle tweet in the U.S.

“But right now, the lead­ing Cana­dian com­pa­nies like Aurora and Canopy and a few oth­ers have no­table ad­van­tages. We have the proven abil­ity to cul­ti­vate, we un­der­stand the process, we’ve op­er­ated un­der tight reg­u­la­tion for four years and we have a track record.

“That means we have a rep­u­ta­tion and a cer­tain level of trust with govern­ments in­ter­na­tion­ally. There’s no time to be lost, and speed is of the essence.”

BRAD POULOS, LEC­TURER I N THE BUSI­NESS OF CANNABIS COURSE AT RY­ER­SON UNI­VER­SITY’S TED ROGERS SCHOOL OF MAN­AGE­MENT, ON THE SEC­TOR’S GROWTH PO­TEN­TIAL

“If you take a look at the en­tire world and ask what’s go­ing to hap­pen to the cannabis in­dus­try over the next 10 to 15 years, I think it’s poised for huge growth. There will be a lot of ju­ris­dic­tions loos­en­ing their re­stric­tions and rep­re­sent­ing a cannabis mar­ket for Canada, or at least for the tech­nol­ogy and all the other things that Cana­dian com­pa­nies will de­velop over the next decade or so.

“If we’re go­ing to build a mean­ing­ful busi­ness here in Canada, it has to be around brand and tech­nol­ogy.”

ASH­LEY DUMOUCHEL, LAWYER WITH AVENTUM I P LAW LLP, OT­TAWA, ON THE NEED TO BUILD GLOB­ALLY REC­OG­NIZ­ABLE BRANDS

“The cannabis in­dus­try is very heav­ily reg­u­lated in terms of brand­ing, la­belling and pack­ag­ing. I think the suc­cess of in­di­vid­ual com­pa­nies is go­ing to rely on avoid­ing reg­u­la­tory is­sues. The in­dus­try play­ers need to man­age their busi­nesses within those brand­ing reg­u­la­tions, but ex­plore where the boundaries are.

“I think li­censed pro­duc­ers can op­er­ate within the reg­u­la­tions and still dis­tin­guish them­selves in the mar­ket­place. If they can build strong brands now, then they can even­tu­ally be­come known world­wide and ex­port to other coun­tries.”

MON­ICA CHADHA, AC­COUNT­ING FIRM ERNST AND YOUNG LLP’S NA­TIONAL CANNABIS LEADER, ON THE OB­STA­CLES FAC­ING CANADA’S I NDUSTRY

“Cana­dian cannabis com­pa­nies op­er­ate with many un­knowns. Their cur­rent key chal­lenge is scal­ing up to meet pro­jected re­tail de­mand while adapt­ing to dif­fer­ent pro­vin­cial and ter­ri­to­rial ap­proaches for re­tail and dis­tri­bu­tion. As they scale up, com­pa­nies must build the com­pe­ten­cies and op­er­at­ing mod­els to be low­cost pro­duc­ers with the high­est qual­ity stan­dards. “As the re­tail mar­ket evolves and com­pe­ti­tion in­creases, the other chal­lenge is to de­velop high-per­form­ing or­ga­ni­za­tions with top tal­ent to de­liver the right busi­ness model. If it’s done right, this should po­si­tion Cana­dian play­ers to ef­fec­tively ex­pand ge­ogra­phies and ex­tend their com­pe­ten­cies in cul­ti­va­tion and re­search and de­vel­op­ment – mo­men­tum that’s al­ready start­ing to oc­cur.” Re­sponses have been edited and con­densed.

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