Canadian cannabis companies have been busily preparing for “Cannabis 2.0,” the legalization of the production and sale of additional cannabis products including edibles, extracts and topicals, which goes into effect Oct. 17—exactly one year after Canada’s launch of a legal adult-use market in the first place.
Health Canada announced final regulations for these products in June, although they will likely not be available in physical or online stores until mid-December, as licensed producers must submit their proposed products for approval 60 days prior to releasing them into the market.
The regulatory landscape for cannabis edibles and topicals will focus on rigorous quality testing, as well as a shift toward dosing regulations, according to Meni Morim, CEO of global online cannabis retailer Namaste Technologies.
Health Canada’s final regulations impose a 10-mg THC limit on cannabis edibles in the form of solids and beverages, and a 10-mg THC limit on ingested extracts—such as capsules—with a maximum of 1,000 mg of THC per package. Inhaled extracts and concentrates also have a 1,000-mg THC cap per package, as do topicals.
“Because concentrates and edibles will be a brand new form of cannabis to millions of Canadians, both regulators and retailers will need to dial-in on the explanations and conversations around ingesting and dosing,” Morim tells Cannabis Business Times.
The launch of these additional products into the legal marketplace will likely help licensed cannabis businesses better compete with the illicit market, according to Daniel Stern, CEO of licensed producer CannMart. There are three major ways that legal businesses can overcome Canada’s still-thriving illicit market, he tells Cannabis Business Times: product quality, pricing and availability.
“Since extracts are processed, their quality will be equal or greater to their illicit market counterparts,” he says. “In the illicit market, a lot of companies are using fillers like glycerin, MCT oil or vitamin E acetate, while licensed producers are held to a standard and only have 100-percent distillate, which allows us to put higher quality products right out of the gate.”
Since cannabis flower has been legal for nearly a year now, wholesale pricing has come down as more licensed producers become operational, Stern adds, which allows prices in the legal market to align more closely with illicit market pricing—a trend that should continue as more products become available.
“The provinces have done a fairly decent job of growing retail availability,” Stern says. “As the provinces continue to open new stores, we’ll see greater availability, which will allow us to compete with the illicit market even more.”
To prepare for increased production and demand, CannMart increased staffing across its sales, marketing and production operations ahead of the Oct. 17 launch of additional products, and continues to focus on getting its second site, CannMart Labs, up and running to increase the company’s productivity, Stern says.
Namaste Technologies has also been hard at work to prepare for the launch of edibles and topicals.
“We’re acquiring all necessary licensing and certification needed to conduct compliant, quality cannabis extraction,” Morim says. “We’ve also started bolstering our inventory of biomass and raw oils, such as distillates and winterized CO2 oils, to make a range of 2.0 products. We’re doing everything we can to make sure we have a full line of top-quality products and accessories to offer our patients by mid-December.”
For edibles manufacturers like infused chocolate maker Choklat, the focus has been on packaging, according to CEO Brad Churchill.
“We have to have all of our packaging certified as child safe by third parties, then provide the names of the manufacturers, the materials [and] the method of manufacture,” he tells Cannabis Business Times.
Choklat converted its existing manufacturing facility into a cannabis-infused facility, Churchill says, which helped cut costs in the buildout phase, although the company has still faced high costs in its entry into the market.
“We have had to hire expensive and full-time qualified quality assurance experts, install $90,000 worth of cameras and video recording equipment, implement extremely militant standard operating procedures, and the list goes on,” he says. “All of this very expensive overhead gets carried every month while we wait for Health Canada to review our application. … The government has made this ‘opportunity’ so prohibitive and expensive that it’s almost not financially worthwhile.”
Nonetheless, Churchill says the market’s barriers and regulations are working to ensure a smooth rollout of legalization in Canada, while the rest of the world watches closely.
“The world is looking at us to see how cannabis legalization plays out,” he says. “In spite of the challenges I face, I believe it’s better to be safe than sorry.”
Despite the regulatory hurdles, Churchill says Choklat has an advantage in the market with its adult-targeted brand that is already sold in grocery stores. The team plans to launch infused sugar and drinking chocolate mix product lines in the coming months, and will continue to leverage that brand strength while keeping an eye on how Cannabis 2.0 unfolds.
“Not everybody buys cannabis, but everybody who buys cannabis also buys groceries,” Churchill says. “We are focusing right now on doing things by the book, chapter and verse—getting our license and selling to the recreational market here in Alberta to start. I think that our brand strength here in Alberta will prove very beneficial to cannabis retailers and will set the stage for other provinces coming on board quickly.”
Namaste Technologies plans to pay close attention to what consumers want in order to respond quickly to market demand.
“Our long-term plans for 2.0 will be based heavily on how the market evolves and performs in general after legalization,” Morim says. “Our goal is to provide top quality, cutting-edge products to our patients, so we plan on listening very closely to what cannabis patients want.”
The CannMart team also plans to keep its eye on sales trends, consumer demand, branding and partnership opportunities as the second wave of legalization rolls out over Canada, Stern says, to ensure the company is ready for any new products that might pop up in the market.
“Our short-term goal is to make sure CannMart has products available in every province on the first available day of sale, Dec. 17,” he says. “Our long-term goal is to ensure CannMart Labs is licensed and able to offer additional products we won’t have on day one, including hydrocarbon extracts [such as] resin [and] shatter, as well as other niche products.”
CannMart is also paying attention to increased licensing and branding opportunities, he adds. “Over the first year of Cannabis 2.0, we anticipate a surge in licensing and branding deals. We also anticipate CPG players trying to enter the market—specifically edibles—through either co-packaging or branding deals.”
“We’re quite confident that oil tinctures and concentrates will be the wave of the future,” Morim says. “We can already see, and hear, the demand for concentrates. We’re seeing it in our data, and our customer reps are hearing patient inquiries over the phones every day. Plus, if you look at the American market where certain forms of concentrates and skincare are now legal, you can already see non-flower forms of cannabis make up about 60 percent of the cannabis product market.”
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