Canada’s Worldwide Cannabis Dominance on Hold

Article by Joel Schlesinger, Globe and Mail

Canada’s worldwide cannabis dominance on hold JOEL SCHLESINGER SPECIAL TO THE GLOBE AND MAIL Eve and Co. Inc. head grower Tom Jobson works with the plants in the company’s greenhouse near Strathroy, Ont., on Nov. 5, 2020. GEOFF ROBINS/THE GLOBE AND MAIL Eve and Co., led by CEO Melinda Rombouts, focuses on producing cannabis products cultivated by women for women. GEOFF ROBINS/THE GLOBE AND MAIL Eve & Co. bath bombs wait to be packaged at the Strathroy facility. GEOFF ROBINS/THE GLOBE AND MAIL

When it comes to exports, it’s been a long, strange trip for Canada’s cannabis companies.

The outbreak of an unprecedented pandemic has made that journey all the more arduous, dampening high hopes of boosting sales abroad, at least for the near term.

Still, exporters largely see the COVID-19 pandemic as just another hurdle to overcome in building a global marketplace for cannabis – one that Canada could very well dominate.

“We’re just so used to governments really stigmatizing the rules around cannabis companies,” says Jordan Sinclair, Ottawa-based vice-president of communications with Smith Falls, Ont.-based Canopy Growth Corp., Canada’s largest industry player and leading exporter.

Given the red-tape challenges – be it Health Canada permits or highly restrictive regulation in export markets – Canadian cannabis exporters are mostly unfazed by the pandemic, he adds.

“It’s already difficult to get cannabis from one market to another because of treaties that state you shouldn’t.”

The most obvious is the United Nations Convention against illegal drugs, which include cannabis and prohibits its export for recreational use. Export for scientific and medical use is allowed.

That’s largely where Canadian firms have focused their efforts.

“It is tough right now,” says Eric Foster, a lawyer and partner at Dentons Canada LLP in Toronto, with a focus on cannabis regulation for producers and other companies in the industry. “We’re dealing with an extremely regulated product in the best cases,” adding it’s only become more challenging amid the pandemic.

Mr. Foster foresees a long-term trend toward “liberalization” that favours Canada’s exporters – COVID-19 aside.

Even the UN may vote by the end of the year to reschedule cannabis to a less restrictive status.

“This may further facilitate trade in cannabis as the UN drug treaties would be less of an obstacle,” he explains.

Even if the UN doesn’t change its stance, Canada appears to be well positioned to become the global leader.

“We’re ahead of most countries in terms of our abilities to export cannabis,” Mr. Foster says.

Health Canada data show producers exported about 3,740 kilograms of cannabis for medical and scientific use in 2019, up 155 per cent from the previous year, the Marijuana Business Daily reported recently. (Health Canada declined to provide its most recent data to The Globe and Mail for this story.)

Indeed, many of Canada’s most recognizable producers – Aphria Inc., Aurora Cannabis Inc., Cronos Group and Tilray to name a few – are exporting cannabis already or in the process of doing so.

Nevertheless, the pandemic presents a near-term impediment to growth.

For one, COVID-19 has at least delayed the already lengthy application process. The European Union, the largest market for medical marijuana, allows imports, but exporters must deal with multiple levels of government regulation.

But the time and effort of gaining approval will eventually prove worth the headaches, says Ivan Ross Vrána, vice-president of government relations and business development at Eve and Co. Inc.

“From the start, we realized Europe is important, even with just medical,” he says.

The Strathroy, Ont.-based producer, led by chief executive Melinda Rombouts, has more than one million square feet of growing space and focuses on producing cannabis cultivated by women for women. Since receiving its Health Canada license in 2016, the firm has had an eye on Germany.

“Germany is close to 85 million people with a [medical marijuana] regime that is growing,” Mr. Ross Vrána says.

In spring 2019, the company began the export-approval process and received its EU GMP (good manufacturing process) certification in March.

“This means we can sell within the entire European Union,” he says.

The certificate came just days before the pandemic hit, and Eve and Co. has yet to make a commercial shipment six months later. Mr. Ross Vrána cites a holdup at Health Canada, with an export permit as the reason for the delay. “I can say quite confidently that if the pandemic wasn’t here, that timeline would have been shortened.”

He adds the delay is understandable given the federal department is focused more on the pandemic than cannabis exports, but it’s still “frustrating.”

For larger firms like Canopy, export markets are already established.

“With the pandemic, we took the general threat to our supply chain seriously and acted very early,” Mr. Sinclair says.

That included shipping more product in the spring to boost inventory overseas in case of disruptions.

Export hiccups could hurt its bottom line given international sales were $20-million in the company’s fourth quarter of 2020, which ended March 31, about 18 per cent of total revenue.

In the best-case scenario, the pandemic will hamper growth, he says, which has been strong.

Fourth-quarter 2020 international sales, for example, grew by more than 1,000 per cent from the same quarter the previous year.

While growth this year will likely be hamstrung, established markets in the EU, Australia and New Zealand will continue to be strong opportunities for Canopy once COVID-19 recedes over the next 18 months, Mr. Sinclair says.

Still, the big fish for Canadian exporters remains the U.S. even if it is mostly off-limits because federal law treats cannabis as having no legitimate use, despite several states permitting recreational and/or medicinal consumption.

All the same, companies have found ways to gain access.

Canopy, for instance, has invested in cannabis firms operating in states where consumption is legal. It also launched product lines containing cannabidiol (CDB) – legal there since 2018 – including a wellness-product line with Martha Stewart.

At the same time, other Canadian producers have sought to export their know-how. That includes Winnipeg-based Delta 9 Cannabis Inc.

“We can’t touch the cannabis plant, but we can sell equipment and infrastructure and provide consulting services,” says John Arbuthnot, chief executive officer of Delta 9.

The company has been shipping patented Grow Pod systems – shipping containers converted to portable grow rooms.

“It’s a turnkey platform for cannabis cultivation.”

So far, the company has exported Grow Pods to Maine and Michigan. While modest, sales have grown rapidly year-over-year, he says.

Read the full article here.

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