Ottawa Makes Smart Move With Edibles

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We already know what Canadians are puffing —among others, we reportedly love the cannabis strains Romulan (created in British Columbia) and Lowryder, which thrives in cooler climates.

But soon, we will know what kinds of cannabis treats Canadians are nibbling, too.

In a pivot that we champion, Ottawa announced this month that it no longer plans to ban edible cannabis products from store shelves in Canada. We won’t see edibles until a year after recreational sales are legal, which is scheduled for July 1 of next year. But at least we are on the proper path.

Cannabis offers manifold benefits to a wide variety of consumers — from people seeking anxiety- and sleep-relief to those who just want to unwind after a long day at work. But smoking is not for everybody. Some people, like asthmatics, reject smoking for health reasons. Others prefer the cannabis experience that comes from edibles — the effects mount slowly (rather than rise quickly, as with smoking), and they last longer.

Eliminating the edibles choice would have needlessly penalized people who choose not to smoke. And it could have fostered an unfortunate black market — people who need or desire cannabis but were barred from the legal market due to regulations would stand as ripe opportunities for black marketeers. We would like to eliminate the black market altogether, of course, and we feel it is especially urgent for cannabis edibles. These are food products, and like all Canadian food products should be subject to regulatory oversight and regulation. The last thing we want to see is a black market for things like cannabis candies, which if made by unregulated amateurs could lead to dangerous products.

The planned roll-out of cannabis edibles is about 20 months away, which means we have plenty of time to draft sensible regulations and for entrepreneurs to begin applying for the licenses they will need, find manufacturing space and accomplish the rest of the tasks necessary before opening a business.

Permitting the sale of edibles is fair to consumers, and potentially beneficial to Canadian business.

In Colorado, Washington and Oregon, the U.S. states with the biggest and most mature recreational cannabis marketplaces, edibles for the first half of this year captured 13 percent of the overall cannabis market, with sales of $181.5 million, according to cannabis data analytics firm BDS Analytics. The broad category, including everything from chocolates to cookies, tinctures, capsules and crackers, is one of the more commercially varied and effervescent slices of the cannabis pie. Edibles brands, unlike flower products, require investments in food-making equipment. And their success rests, in part, upon branding, packaging and messaging (as well as quality). The best flower businesses, on the other hand, remain fixed on quality and relationships with the wholesale and dispensary markets. Public-facing branding is not vital.

Where growing is agricultural, and invites people interested in everything from lighting technology to hydroponics to the cannabis table, edibles is a food industry. Chefs, bakers, product development specialists and others interested in that line of work are attracted to edibles jobs. In addition, professional product designers play important roles in this industry. Just consider the brand bonanza surrounding the food industry — it is the busiest commercial marketplace in the world. Cannabis edibles will never approach the broad food industry, in terms of brand proliferation. But if edibles regulations in Canada are structured wisely, we could witness a healthy expansion of jobs, occupied real estate, tax receipts and overall economic vitality. We certainly see a lot of economic activity in Colorado, Washington and Oregon due to these states’ highly regulated edibles industries.

The work on edibles lies ahead for all Canadians — from growers to food production specialists to parents concerned about keeping products away from their kids. The principal goals are the same for all of us — safe products, and economic vitality.

U.S. Cannabis Experience Holds Promise for Canada

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If Canada’s experience with legal recreational marijuana parallels what is taking place in U.S. states, we have much to anticipate in terms of entrepreneurial ferment, job creation, wealth expansion and boosted tax receipts.

Legal recreational marijuana has been the law of the land in Colorado for three and a half years, and a little more than three years in Washington. Oregon staggered its roll-out of recreational marijuana between 2015 and last year, Alaska’s and Nevada’s programs are up and running, and soon to follow are Massachusetts, Maine and the cannabis behemoth known as California.

And in Canada, we are marching towards nationwide legalization sometime next year.

Data from cannabis market research leader BDS Analytics shows that even as the pot boom enters its fourth year in Colorado and Washington, the marijuana marketplace continues to grow at a rapid pace.

Year-to-date through April of this year, cannabis sales in CO, OR and WA reached $916.13 million, which is 35 percent ahead of last year’s sales. Growth like that in established markets is simply jaw-dropping. In most industries, growth of a handful of percentage points is considered a break-out-the-champagne triumph.

While sales overall boomed, growth was especially pronounced in a few categories and we are wise to study sales trends in U.S. states to help understand what the Canadian cannabis marketplace might look like soon after joints, vape pens and brownies start being sold to recreational consumers.

The U.S. cannabis market falls into a number of categories, but the three dominant are flower (bulk cannabis sold by weight), concentrates (products like vape pens, shatter and wax) and edibles — everything from refrigerated sodas to cooking oils to slices of cherry pie.

Among the top three, flower sales dominate in all states. During the first quarter of 2017 in all channels between Colorado, Washington and Oregon, flower captured 52 percent of the broader cannabis market. Meanwhile, concentrates snagged 24 percent of the market, and edibles earned 12 percent.

Flower’s dominance is impressive, but the other categories are muscling into its domain. During Q1 2016, for example, flower owned 60 percent of the market.

The slow but steady increase of concentrates sales, at the expense of flower, rooted in Colorado, Washington and Oregon and could easily describe the Canadian marketplace once full legalization is in place. Edibles, while a strong cannabis market, has grown quite a bit in each state over the years in terms of sales, but market share between the states has tended to bounce around between 11 and 13 percent. Meanwhile, concentrates’ market share grew from 14 percent in 2014 to 18 percent in 2015, 21 percent in 2016, and 24 percent so far in 2017.

The concentrates category is growing across the board, for the most part, but the market leader is vape pens and cartridges. For the first quarter of 2017 in CO and WA, for example, vapes expanded by 86 percent percent, on sales of $44.52 million (we exclude studying growth in vapes in Oregon because the category was not for sale in recreational stores during Q1 of 2016.

Meanwhile, flower sales do continue to positively boom in states with recreational sales regimes. In Colorado, sales of flower during the first quarter of 2017 reached $178.6 million, up 20.4 percent from the same quarter in 2016 (and all of the growth came from the recreational channel, which saw sales increase by 35.5 percent, while medical fell by 4.5 percent).

In Washington State, the trend for flower is even more dramatic, up 44.5 percent during the first quarter of 2017 compared to the same quarter in 2016.

The Canada experience with recreational marijuana will hinge, in part, on the regulatory framework. Laws can have immense impact on sales trends. In Washington State, for example, the state banned THC-infused candy when recreational sales first began in June of 2014. The state eventually allowed candy, but sales of the category in the state today, at 32 percent of edibles during Q1 2017, are far behind the market share for candy in Colorado, which stands at 50 percent.

Laws do matter, especially in an industry like cannabis which is likely to experience complicated and wide-ranging regulations regardless of whether the laws are being set in California or Canada.

We are eager to continue to engage with provincial and federal officials and industry stakeholders as Canada continues its progress towards full legalization next year. Based on what has flowered in the United States, we have much to look forward to in this blossoming industry.