Recreational cannabis has been legal in Canada for roughly seven months. Well underway, the industry is defining its laws, building its brands, and securing those all-important consumer relationships.
But for some time now, producers have been looking ahead and with good reason; the "second wave" of legalization is due on October 17. This "wave" will make all cannabis edibles, drinks, and vaping products as legal as their dried flower counterparts.
Cannabis Second Wave: More Details Released
On Friday, June 14, the Canadian government released details regarding the final version of its regulations over cannabis products. The rules will come into effect on October 17. However, any federal cannabis license holders wanting to sell cannabis-derivative products must provide 60 days’ notice to Health Canada after October 17 comes into effect.
Therefore, to allow for that time-period, cannabis-infused edibles won't actually hit the shelves until mid-December.
An Eager Industry Awaits Cannabis Second Wave
Cannabis derivatives command much higher margins than dried flower. And as such, producers are eager to supply what will be a hungry market (pardon the pun).
"I think if you're not preparing things two years in advance, you're never ready," says Bruce Linton, the founder and co-CEO of Canopy Growth (TSX:WEED) (NYSE:CGC). His company, under the brand Tweed, is experimenting with cannabis chocolates, gummy bears, and beverages.
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Under current legislation, the actual preparation of edible products is forbidden, so all Linton and his peers can do is experiment.
But with cannabis's second wave presenting the next big opportunity, companies such as his have been preparing however the law allows them. In Canopy's case, the largest cannabis firm by market cap has secured the most lucrative deal in the biz—a $4 billion USD investment from Constellation Brands (NYSE:STZ) for the purpose of developing cannabis beverages.
The excitement for edibles is palpable throughout the industry, from the major cannabis corporations down to the smaller sized ones.
Falling into the latter category, Auxly Cannabis Group's (TSXV:XLY) (OTCQX:CBWTF) Dosecann has been waiting three years for the cannabis second wave legalization to go live. Once October 17 rolls around, the company can begin "the full production of these edibles or value-added products."
Dosecann's goal is to build an inventory that satisfies the huge market in existence across Canada. That inventory will eventually include "things such as vape pens, potentially topicals, and edibles such as chocolates and potentially gummies."
And Auxly's CEO Chuck Rifici furthered the sentiment when he said his company was focusing on developing all the products "that one might find if they wander into an unlicensed dispensary today."
Black Market
Unlicensed dispensaries and sellers are still an issue for the cannabis industry. With the black market still very much active despite flower and oils being legal, there is another need for edibles to be legalized. The need is simple—to help drive out this illicit market.
The black market still attracts many buyers because without having to pay taxes or overheads, prices per gram of cannabis are much cheaper on the street. However, in time, the expanse of the legal industry should help to cull the majority of illicit sellers as consumers opt for quality, assurance, and reliability.
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As news site Business of Cannabis co-founder Jay Rosenthal says:
"[Edibles] are the products that the black market has been really good at marketing and selling."
He continues that it is for this reason that "these products are really important to bring online."
With people still flocking to illicit sellers to buy edibles, the legal market needs to catch up fast and lure people towards a quality controlled product.
Social Demand
There is another simple reason cannabis's second wave of legalization is important for producers: edibles and infused beverages may come with higher demand than dried flower. Many people don't like to smoke, yet most people love to eat and drink. Socially, the latter is more accepted than the former. The simple math, therefore, suggests that the edibles market is potentially much larger than the smoking market.
Canopy's Bruce Linton says on this matter:
"If you come to my house, do you want me to pour you a beverage that makes you feel a little happy? Or do you want to smoke marijuana? [...] Many people find it socially comfortable to have a beverage."
Shares of Canopy Growth are selling for $41.12 at present on the NYSE. Shares of Auxly Cannabis are selling for $0.75 CAD on the TSX Venture Exchange.
Featured Image: DepositPhotos © EdZbarzhyvetsky
