During Startupfest’s CannabisFest, cannabis entrepreneurs joined industry specialists and investors in Montreal on Tuesday for a day of discussions around business opportunities come Canadian legalization on October 17.
The Canadian cannabis market is expected to grow—no pun intended—from $1.3 billion in 2018 to $6.1 billion by 2025, according to New Frontier Data founder and CEO Giadha Aguirre de Carcer. The main types of companies she expects to form include state-of-the-art cultivation, high efficiency/high yield oil extraction, tech-based business solutions, infused consumer products, innovative consumption devices and data-centric consumer experience platforms (e.g. Strainprint, Track Session).
“Come two or three years, there’s going to be a supply crunch, and the lowest cost, highest quality product is going to win.”
Despite so many regulatory questions yet unanswered and so much risk – including overproduction leading to lowered wholesale prices; competition from illegal markets and other countries; capital risk if the US legalizes nationally; and marketing restrictions reducing consumer engagement and education – panelists agreed that there are huge opportunities for new businesses, especially in health and wellness.
“Come two or three years, there’s going to be a supply crunch, and the lowest cost, highest quality product is going to win,” said Matt Skynner, president and COO Braingrid Corporation in the morning’s Ask Me Anything: B2B session.
Other takeaways from the day included the fact that legalization will most likely lead to more criminalization of cannabis. “Distributing cannabis to a minor comes with a 12-year prison sentence,” said John Prentice, CEO of Ample Organics, in his session on the recent history of cannabis in Canada.
One of the interesting legal loopholes of cannabis legalization revolves around condos. In the Policy, Regulation and Compliance: Canada and Abroad session, Trina Fraser, co-managing partner of Brazeau Seller Law, and a specialist in cannabis law explained while laws vary from province to province, in Ontario, condo boards can make rules about whether or not you’ll be able to smoke cannabis in the condo building and your own unit, despite provincial legislation allowing at-home use.
“You can educate your locals, get involved with politics and make it happen.”
“Smoke travels and people have trouble with smoke,” she explained. “I’m really shocked about how many condo boards aren’t making any accommodations for medical uses. Everything they do is subject to the Human Rights Code and they have to regulate usage and undue hardship. But to what extent do your neighbours rights trump your rights?”
In addition to liability issues and potential rights violations, overregulation could also negatively affect businesses, said Pamela Hadfield, co-founder of San Francisco-based HelloMD:
“For 20 years in California, medical marijuana was basically accessible for everyone. What we’ve seen in the transition into the legal market is a trend of overregulation, which hasn’t been positive for the industry as a whole. In California, they were expecting for the first quarter $137 million in tax revenue [after legalization]; they’ve gotten $37 million. You look at the amount of cannabis brands that were existing in California, it was around 1500 six months ago. Now we have 156 that are licensed. So when you see a government regulating the market, there’s appropriate regulation in terms of safety, efficacy, decriminalization, and what I see is the overregulation is killing the market.”
In terms of the types of cannabis-based companies with the biggest market potential, Hadfield and Cassandra Farrington, co-founder and CEO of Marijuana Business Daily, agreed that the health and wellness sector will be bigger than the recreational sector. “About 50 percent of people who come through our platform say that anxiety and stress is the number reason they come, or maybe the secondary reason to consume cannabis,” said Hadfield. “And I’d say about half of those people, to maybe majority are not looking for psycho-active products.”
“I’ve been in tobacco, alcohol and then worked at Red Bull, now with medical cannabis I can say I finally feel good about what I am doing,” – George Scorisis from Liberty Health Sciences on the #greenstage at #cannabisfest pic.twitter.com/NfzHEywrZz
— Braingrid (@BraingridCorp) July 10, 2018
“People use it as a stress reducer,” added Farrington. “They replace alcohol with it. Instead of having a wind-down drink, they’re turning to a cannabis product. That’s an interesting application.”
@ZhangMona speaks about the regulatory in USA, opportunities & risks @startupfest #cannabisfest @HelloMD_com pic.twitter.com/ztf3xcFyls
— Strainprint (@strainprint) July 10, 2018
One of the biggest challenges for cannabis companies is how to market a product that can’t claim therapeutic effects and can’t use flashy labelling or advertising. “People are saying ‘we can’t brand. We can’t create cool packages,’ but that’s just one part of the mix,” said George Scorsis, CEO of Liberty Health and formerly of Red Bull Canada. “It’s about storytelling and one customer at a time. At Red Bull in the early days, we didn’t have a huge consumer base. We had street teams and we built stories. We talked about giving people wings for their day. So stay credible, because credibility is conveyed to the consumer and that’s when you’re going to win.” The upside of the marketing limitations, he added, is that you won’t be competing with established companies with giant marketing budgets.
Erin Gore, founder and CEO of Garden Society, marketed her line of low-dose edibles marketed to women looking to manage pain and stress by hosting garden parties. She also took it upon herself to educate policymakers. Based in Sonoma Valley, she also co-owns a boutique vineyard, sells fruits and vegetables from the estate, is a member of the Sonoma County Growers Alliance, and belongs to the Circular Board, The Collaborative Accelerator for Women Entrepreneurs.
“Our local [policymakers] had no idea about cannabis and they were scared, so I started bringing samples. So you can educate your locals, get involved with politics and make it happen,” she said.
Startupfest continues in Montreal until July 14.