There is an increasing number of cannabis businesses announcing entry into national and international stock trades. Here, we dive deep to explore on how to invest in the Canadian cannabis industry.
As lots of nations and states move to legalize and manage the purchase, production, and cultivation of cannabis, the market reacts accordingly. The legally endorsed development and consumption of cannabis for adult use and medicinal reasons are becoming increasingly common.
Products containing cannabis and its subsidiaries are enjoying a market flood. But what do individuals need to think about with regards to invest in the Canadian cannabis industry?
The medical cannabis market was worth $13.4bn globally in 2018, with a projected compound yearly growth pace of 26.4%, meaning its value could increase to $148bn by 2026. Deals of products containing CBD came to $1.9bn in 2018 and can ascend to $20bn by 2024.
Invest in the Canadian Cannabis Industry – The Next Big Thing
No cannabis firms are on the exchange until this point in time, leaving investors to test international stock markets’ profundity. Growing quantities of North American organizations are listing on American and Canadian trades, while Europe has seen a blast in return exchanged assets.
Zeta Ceti, CEO of Green Rush Consulting, reported to MCN that the first privileges to invest in the Canadian cannabis industry as an investor take you to a new industry that may yield the most return.
There is also a significant measure of innovation in the space with heaps of space for growth. The key downsides are a significant risk, uncertainty, and poor management groups without proper execution.”
Learning from the Canadian Cannabis Industry
Canada has been leading the worldwide cannabis market, both in business and medicinal terms. The country’s initial adoption of legalized medical – and, later, adult-use – cannabis, in tandem with the light regulatory approach favored by the Canadian government, has contributed to a blast in Canadian cannabis production.
It helps form new businesses committed to cannabis products and the extension of existing entities to fulfill growing consumer needs. Moreover, Canada’s inattentive approach to cannabis development has implied that Canadian producers are as often as possible depended upon to import cannabis to nations whose enactment is a couple of years behind Canada’s, but whose demand is growing similarly as quickly.
Not many EU Member States are ready to produce their cannabis subsidiaries; even when intra-EU development projects are entirely operative, it will be some years before they can satisfy internal market needs.
Banking and Regulation
One key impediment looked by both cannabis-related businesses, and their investors is that of financial regulation. Even in nations where licensed cannabis production is nominally legal, business proprietors and investors have confronted difficulties accessing finance and banking support, with entirely legitimate corporate cannabis disciples reporting the conclusion of financial balances without forewarning and the seizure of assets.
In numerous nations, while cannabis might be entirely or partially legal – whether this is as a remedy just medicine, as an over-the-counter treatment or freely available for purchase – the enactment that oversees banking and finance yet to get up to speed.
Canadian Cannabis Industry Statistics
The Canadian cannabis market has been consistently growing. The nation has observed an average of a 10 percent increase every month in the number of Canadian patients joined to get medical cannabis. The offer of dried cannabis has grown consistently at 6 percent a month, and the offer of marijuana oil has been rising by 16 percent a month.
About 4.9 million Canadians (aged between 15 to 64) spent nearly $5.7 billion on cannabis for recreational and medicinal purposes in 2017. It was proportional to around $1,200 per cannabis consumer.
In 2018, Canadians burned through $1.6 billion on legal cannabis, more than double the sum spent on only medical marijuana in 2017, according to the article “The State of Legal Marijuana Market,” published by BDS Analytics and Arcview Market Research.
The federal government approved recreational cannabis on October 17, 2018. Subsequently, deals at cannabis stores in the initial three months after legalization totaled $151.5 million. In the mid-2019, it came to nearly $420 million as per Statistics Canada.
Total deals of dried cannabis in Quarter 2 of 2019 increased by 31.3% from the first quarter of 2019 (from 21,616 kilograms to 28,374 kilograms), while total sales in cannabis oil increased by 19.4% (from 23,134 liters to 27,632 liters) during that period.
Fees and Taxes
Cost reimbursement for the ordinance of cannabis involves four expenses:
- Application screening expense:
It recoups the costs associated with screening new license applications ($3,277 for standard license applicants and $1,638 for small scale and nursery license applicants);
- Security leeway charge:
It recoups the costs associated with screening, processing, and issuing or refusing security clearances ($1,654);
- Import/export permit expense:
It recoups the costs associated with screening, processing, and issuing or refusing to give an import or export authorization for medical or scientific purposes ($610); and,
- Yearly regulatory charge:
It recuperates the total costs of administering the cannabis regulatory program that isn’t under some other expenses. It includes 2.3% of cannabis revenue for standard license holders, or $23,000 if cannabis revenue is under $1 million.
Moreover, it also incorporates 1% on the first $1 million of cannabis revenue for miniaturized scale and nursery license holders or $2,500 in cases where cannabis revenue is under $250,000.
- License holders
The individuals who produce cannabis only for medical treatments don’t need to pay a yearly regulatory charge.
The federal extract obligation rate will be 25 pennies per gram of cannabis or 2.5 percent of its deal price. A supplementary charge will apply for an agreeing province or territory.
Rates of cannabis duty with other duties
Cannabis product Flat‑rate cannabis duty Ad valorem cannabis duty Flat‑rate additional cannabis duty Ad valorem additional cannabis duty
Flowering material involved in the cannabis product or used in the making of the cannabis product $0.25 per gram 2.5% of the dutiable amount for the cannabis product $0.75 per gram 7.5% of the dutiable amount for the cannabis product
Non‑flowering element covered in the cannabis product or used in the production of the cannabis product (including flowering material that is industrial hemp by‑product) $0.075 per gram 2.5% of the dutiable amount for the cannabis product $0.225 per gram 7.5% of the dutiable amount for the cannabis product
The additional cannabis duty’s adjustment rates are necessary when packaged. Also, they can deliver stepped cannabis products to a purchaser in provinces as listed below:
- Alberta, 16.8%;
- Nunavut, 19.3%;
- Ontario, 3.9%;
- Saskatchewan, 6.45%
It is important to note that extract obligations are not paid straightforwardly by consumers; instead, manufacturers pay them.
Canadian Cannabis Market Forecast
The entire Canadian cannabis market, including medical and recreational products, is relied upon to create up to $7.17 billion in total deals in 2019. Legal sales might contribute more than half of this total – up to $4.34 billion.
The cannabis market is ready to have a significant impression overall on Canada’s economy. One research from Deloitte Private pegged the potential economic influence of legalized recreational cannabis in Canada at more than $22 billion, including licensing expenses, security, and transportation.
In line with the Canadian Imperial Bank of Commerce estimate, the cannabis business will hold a retail value of $6.8 billion by 2020. Besides, it is much larger than the liquor market and nearly as broad as the wine market.
Ontario Cannabis Market
Ontario was the leading province out of the entryway with a point by point intend to sell and distribute recreational cannabis when Ottawa legalizes it the following summer. Province has set up a point by point plan for the deals and distribution of recreational cannabis.
On October 17, 2018, the province introduced a system for online deals through the Ontario Cannabis Store (OCS) to meet the federal government’s prerequisites that provinces be ready for local sales by that date.
- The minimum age to use, purchase, and have recreational cannabis in Ontario is 19. People cannot use recreational cannabis in open spots and workplaces.
- A limit of 30 grams (around one ounce) of dried cannabis (or equivalent) is allowed.
- Illicit cannabis dispensaries are not and won’t be legal retailers. The province will seek a coordinated and proactive enforcement procedure, working with municipalities, the OPP, neighborhood police services, and the central government to help shut down these illegal operations.
The Ontario Cannabis Store
The Ontario Cannabis Store (OCS) does not operate any storefronts but provides an online channel that includes an age-verification system to guarantee safe home delivery of cannabis products. The OCS also acts as a discount provider for private retailers.
The Alcohol and Gaming Commission of Ontario grants licenses to retail operators and approves retail locations. To operate a cannabis retail location in Ontario, a Retail Operator License (as an individual) and a Retail Store Authorization (for each retail store) is necessary.
As of December 2019, they have processed 68 Cannabis Retail Operator Applications. Moreover, 26 companies received Retail Store Authorization.
Information gathered by Statistics Canada shows that local deals in Ontario came to $8.9 million in January, then hopped to nearly $20 million in April and increased to $33.8 million in August 2019 and $38.2 million in February 2020.
Canada leads the space on global cannabis legalization as the report suggests that the Ontario cannabis market will rise to almost $2 billion in 2024.
Alberta Cannabis Market
The Canadian government reported new enactment to legalize cannabis for recreational use in April 2017, paving the country’s route to turning into the first in the G7 to legalize cannabis completely. The federal government-sanctioned recreational marijuana on October 17, 2018, but left it up to the provinces and territories to manage distribution and deals.
An ongoing study from Deloitte Private results proposes that on recreational cannabis deals alone, the Canadian market could be as much as $4.9bn per year to begin – a number comparable to the Canadian liquor market.
At the upper threshold, which considers the individuals who are “liable to consume,” cannabis deals alone could be as high as $8.7bn, like deals created by wine. The possible financial result of legalized recreational cannabis could be over $22 billion, including transportation, licensing charges, and security.
Cannabis Legalization in Alberta
The Alberta government framework to direct marijuana leaves opens the possibility that privately owned businesses could sell adult-use weed products.
Albertans can consume weed in their homes and in some open spaces where smoking tobacco is allowed, but you cannot use it in vehicles.
Cannabis Retail Sales Regulations
- Albertans of legal age (18) can purchase cannabis products from retailers that get their products from a government-directed distributor.
- Online deals and home delivery are just available through a single website operated by the AGLC at albertacannabis.org. No other online deals or delivery is allowed.
- Just particular retail outlets can sell cannabis, up to a limit of 30 grams per purchase, and cannot sell cannabis if they sell alcohol, tobacco, or pharmaceuticals.
- The regulations build-up that private cannabis stores must operate with a 100-meter cradle between cannabis retailers and schools and provincial healthcare departments.
In Alberta, 458 retailers sell marijuana, incorporating 104 stores in Calgary. As of December 2019, the province’s shops sell more than $290 million worth of legal marijuana since October 17, 2018.
Cannabis Market Projection in Alberta
The Cannabis Intelligence Briefing report, issued by Arcview Market Research and in cooperation with BDS Analytics, states that by 2024, Alberta’s cannabis market will expand from $255 million in 2019 to nearly $940 million.
According to Statistics Canada, the country’s liquor sales were calculated 18,127,362 in 2016, and Alberta estimated 2,950,420 (more than 15%) of that tally. In this way, the Alberta cannabis market could be $1bn per year for the recreational part.
Cannabis Legalization in Manitoba
Manitoba’s government has pronounced that all alternatives are on the table for its cannabis deals and distribution regulations. Before moving forward with one framework, Manitoba’s government had invited cannabis-industry pioneers to talk about the best practice to deal with the recreational drug.
In November 2017, Manitoba Premier Brian Pallister announced that retail sales of marijuana would be made solely through private retailers when recreational use of the drug gets legal. The province is also welcoming online private retailers. And, cannabis can be obtainable within a 30-minute drive for around 90 percent of the populace.
The government will maintain discount syndication, but private stores will sell cannabis products at their set prices. The government asks potential retailers to submit offers, and they will pass judgment on offers on storage security, good ways from schools, and more. That process remained open until December 22, 2017.
The federal council legalized recreational cannabis on October 17, 2018, but left it up to the provinces and territories to administer distribution and deals. Manitoba Liquor and Lotteries will deal with gracefully chains and orders from retailers.
With its low cost of electricity, gifted labor force, focal area, and cold atmosphere ideal for indoor growing facilities, Manitoba is considered an ideal spot for cannabis producers.
Cannabis Business in Manitoba
Weighing in on Manitoba’s recreational marijuana distribution structure, John Arbuthnot of mail-order medical marijuana firm Delta 9 said that he feels mixing private and open undertakings could bode well, as long as Manitoba’s Liquor and Lotteries are ready and willing to take an interest in the system.
Established in 2013, Delta 9 would like to expand with recreational marijuana legalization to have open storefronts. The organization right now produces around 1,200 kg of medical cannabis at its 80,000-square-foot Transcona warehouse, which creates around $2 million in deals annually.
With $6 million raised during its initial four years of operation, and plans to raise another $5 million, Delta 9 intends to list its stock on the TSX Venture Exchange. To increase operations to fulfill the needs of completely legalized cannabis, Delta 9 has plans to bring $25 million up in 2018 to expand operations.
Manitoba is home to one other licensed cannabis producer, Bonify. Bonify is at present waiting for approval from Health Canada to sell the harvest of marijuana grown in its 320,000-square-foot warehouse in the North End.
Cannabis Legalization in British Columbia
On February 5, 2018, the BC government declared open consumption, local deals, and personal cultivation choices.
In BC, the province has ascertained that it will allow personal development, open consumption of vaped and smoked cannabis, and outlined a local deals model.
Like most provinces and regions, BC increases the minimum age to buy and utilize cannabis to 19 years old.
BC will have a government-run discount distribution model. The BC Liquor Distribution Branch (LDB) will be the discount distributor of non-medical cannabis in BC; however, the retail model will combine both open and private retail.
Municipalities can boycott private retail operations or limit these operations’ degrees, depending on laws and regulations.
The City of Vancouver and Victoria have already begun regulating cannabis for recreational use. Vancouver, as of now, has ten areas operating with an approved improvement permit and business license.
There are also around 60 retailers operating in Vancouver without a permit/license. Victoria has approved one Cannabis Business Rezoning application and Cannabis Business License application. Evaluations indicate 38 cannabis-related businesses in Victoria, with 35 operating as storefront cannabis retailers without a permit/license.
Applying for a Cannabis Business License
You should apply for a cannabis license under the Excise Act, 2001 if you are:
- cultivating (you grow cannabis products)
- producing (you produce cannabis products)
- packaging (you package cannabis products)
You don’t require to apply for a license in any of the following circumstances if you:
- produces cannabis products in Canada for your personal use following the Cannabis Act
- under the Cannabis Act creates cannabis products in Canada for your medical purposes
- produces cannabis products in Canada, and who under the Cannabis Act is an assigned person who is authorized to produce cannabis products in Canada for the medical reasons for another individual
- grow industrial hemp for its by-products
Even though you have a Health Canada license, you should apply for a CRA cannabis license for medical and non-medical (recreational) purposes.
If you are packaging cannabis products, you should also enlist for the cannabis stamping system before selling any packaged marijuana products.
For more information, go through the registration process for the cannabis stamping regime.
For How Long is the Cannabis License Valid?
Your license is legitimate for a limit of 2 years. They will not automatically renew your license. To renew your license, you should apply for a license renewal no later than 30 days before your current license lapse date. It would be excellent if you proceeded to meet the prerequisites of the license during the license term.
For more information, scan through Excise Duty Notice EDN52, Getting and Renewing a Cannabis Licence.
Eligibility Conditions for a Cannabis License
To ask for or renew your cannabis license, you should meet all of the following requirements:
- Your debt should be paid.
- You agree to any Act of Parliament (other than the Excise Act, 2001) or a provincial or territorial governing body. It deals with the tax assessment or administration of alcohol or tobacco, or any laws under it past five years.
- Every individual involved must be at least 18 years old.
- Have a business address in Canada
- Provide a rundown of all premises that will develop, producing and/or packaging cannabis products
- Have adequate financial resources to conduct your business in a capable way
- You have not acted to swindle her Majesty in the past five years.
- Hold a substantial license/permit from Health Canada gave under the Cannabis Act.
- Provide adequate security to cover one month of cannabis obligation liability (minimum of $5,000 and a limit of $5 million)
- Provide a business plan (with a business industry diagram, financial arrangement or source of assets, operating arrangement, and a deals and marketing plan)
The minimum expense of security deposit needed for licensees who are just cultivating and/or producing cannabis products would be $5,000. The most extreme security sum would be $5 million for cannabis licensees who package cannabis products.
[(estimated amount of grams of dried cannabis sales over the initial year x $1 per gram) + (assessed number of milligrams of total THC sales over the initial year x $0.01)] ÷ 12 months
[(estimated amount of grams of dried cannabis sales over the initial year x $1 per gram) + (assessed number of milligrams of total THC sales over the initial year x $0.01)] ÷ 12 months
For a license renewal application, security would be the highest measure of cannabis obligations payable for a schedule month in the past 12 months.
If you have specific questions on calculating the security expense, call 1-866-330-3304 or send an email to [email protected]
For more information, please visit Excise Duty Notice EDN52, Acquiring, and Renewing a Cannabis Licence.
How to Apply For a Cannabis License
To apply for a cannabis license, use Form L300, Cannabis Licence Application.
You may also need to join the following to support your cannabis license application:
- L300 SCHA Schedule A – Other Business Location(s)
- L300 SCHB Schedule B – Information Relating to Directors, Officers, Partners, Individuals, or Shareholders
- L302 Surety Bond for Cannabis
Steps to Follow After Cannabis License Application
They will review your application to decide if you are ready for a cannabis license based on your data on Form L300. Besides, they may contact you if they need more further information.
After meeting the eligibility criteria, they will send you a confirmation letter for your CRA cannabis license permission and provide a new excise duty program’s account number.
Your application for a cannabis license isn’t an approval to begin your business activities relating to cannabis. You can just begin to produce cannabis products after you get licenses from both the CRA and Health Canada. For more information on how to enlist with Health Canada, go to canada.ca/cannabis.
Responsibilities of a Cannabis Licensee
As a cannabis licensee, you should:
- Register for the cannabis stamping system (if you are packaging cannabis products for the final deal)
- Ascertain the duties exacted on cannabis.
- Report (send) and remit (pay) the month to month duty payable on marijuana through Form B300 – Cannabis Duty and Information Return
- Report packaged and unpackaged cannabis product inventories using Form B300.
- Keep all your supporting documents at any rate of six years to support all aspects of your operations.
- Apply for license renewal in 30 days before the license expiration. (your license is substantial for a limit of 2 years).
You can let us know if any information you provided in your license application has changed or is not the same. For the regional extract offices’ contact information, go to Contact Information – Excise Duty, Excise Taxes, Fuel Charge, and Air Travellers Security Charge.
For more information, see Excise Duty Notice EDN52, Obtaining and Renewing a Cannabis Licence.
Conditions to Suspend Cannabis License
The CRA can suspend or drop your license if you not, at this point, meet the licensee’s conditions. These reasons cover but are not limited to:
- In case of bankruptcy
- Stop cultivating, producing, or packaging cannabis products
- Neglect to consent to any Act for the tax collection or control of alcohol or tobacco
- Act to defraud Her Majesty
- Neglect to notify the CRA of any progressions to your licensing information as required by enactment.
If a difference in legal entity happens (for instance, a proprietorship incorporates), you would need to apply for a new license using Form L300 and your existing cannabis license would be dropped.
If they don’t cancel your license at your request, the CRA will send you a written notice 90 days before its cancellation date. Consequently, you will have 90 days from the date of notification to explain why they should not drop the license.
For more information, see Excise Duty Notice EDN52, Obtaining and Renewing a Cannabis Licence.
Advertising for Marijuana Businesses
Cannabis growers and distributors will have the option to advertise, but with limited open advertising. It is fundamental to discourage teens and young adults from trying out cannabis products.
Approved cannabis advertisements will be factual and contain exact information on the product as well as risk factors. Moreover, advertisements should not target young people, and there won’t be promotional endorsements by sponsoring organizations.
Canada vs. USA — Investment Opportunities in the Cannabis Industry
The number of citizens in the USA is 330 million. The number of residents in Canada is 37.5 million. Moreover, Canada has legalized cannabis nationally. In the US, cannabis is currently completely legal in 11 states, with only legal medicinal cannabis in 33 states.
It implies about 66% of the US populace (more than 200 million individuals) have fractional access to legal cannabis. California has an entirely legal market with a bigger populace than Canada (39.75 million).
Apart from that, BDS Analytics has assessed legal cannabis spending in the US will reach US$12.2 billion in 2019. In Canada, even at the current velocity of transactions (CAD$127.3 million in August, as per the record on StatsCan), Canada has a CAD$1.5 billion cannabis industry.
Despite this, Canada offers both cannabis organizations and cannabis investors the best opportunities today. If you’re engaged in springing a marijuana business in Canada, this is the correct approach to do it.
Top Canadian Cannabis Companies by Revenue
Since the cannabis legalization in Canada in 2018, the past several years have seen a burgeoning growth for Canadian marijuana organizations. As legalization continued to spread—including all through the bordering US—Canadian cannabis organizations and investors, the same saw a significant opportunity.
More and more organizations have propelled. Some major non-cannabis companies, similar to beverage producer Constellation Brands (STZ), have invested intensely in cannabis-focused stores in the act of support for the industry’s fate.
#1 – Canopy Growth Corp.
[Market capital: $6.76 billion]
Canopy Growth Corp. (CGC) is an Ontario-based organization with the distinction of being the first federally-controlled and licensed traded on an open market cannabis grower in North America. With an investment of about $4 billion by Constellation Brands in August of 2018, Canopy Growth is the leading marijuana organization by market capitalization.
#2 – Cronos Group
[Market capital: $2.36 billion]
Cronos Group‘s reach is astounding in the world of cannabis. The company is already boasting international production and distribution across five continents. Moreover, it builds products from hemp and CBD for wellness. While there has been some ongoing volatility in the stock because of a class action recorded against Cronos, their shares have also been indicative that cannabis sales and deliveries may rise.
#3 – Aphria
[Market capital: $1.37 billion]
Established in 2014, Aphria (APHA) is a generally new contestant into the legal cannabis space.
Furthermore, it focuses on medical cannabis, having first gotten a license to produce and sell medical products. To expand into the US, Aphria has engaged in high profile acquisitions lately. For the last financial quarter of 2019, Aphria reported net revenue of CAD$128.6 million.
#4 – Aurora Cannabis
[Market capital: $1.15 billion]
Headquartered in Edmonton, Aurora Cannabis (ACB) is a major cannabis producer and a licensed distributor.
Aurora boasts a robust international approach. It purchased Berlin-based Pedanios GmbH and got understanding through an auxiliary called Pedanios to the Italian cannabis market. It also purchased MedReleaf and CanniMed in 2018.
Risk Factors to Consider to Invest in the Canadian Cannabis Industry
Cannabis has been generally helpful for thousands of years. However, since the 1940s, the drug has gotten illegal in numerous nations on account of the US-carved War on Drugs.
Apart from that, in a surprising turn, the US has become among the first significant nations to decriminalize the drug on a state-by-state level. Despite these patterns, the drug remains illegal in numerous nations and countenances regulatory risks on a federal level.
Canada’s cannabis industry is thriving on a federal level. However, there are many risks that investors must consider. Organizations operating in the space could confront risks regarding exporting the drug. After some time, it could become an issue as the domestic market gets immersed, and export markets become a key growth driver. Numerous organizations also exchanged over-the-counter with somewhat limited trading volume in the US.
The Bottom Line – Thinking Beyond the Blunt
Canadian organizations with international aspirations have not wasted time forming key partnerships and laying the groundwork for an international extension.
Apart from that, built-up Canadian organizations have an away from at these beginning of the international market. In any case, as domestic players begin to contend in the marketplace, that advantage could begin to blur.
Besides, through global strategic partnerships and optimal development strategies, Canadian cannabis companies have a rare chance to authenticate themselves as global giants while their competition is still soaring.
Canada’s most comprehensive provincial markets (Ontario and Quebec) are still woefully under-serviced with legalized cannabis retail stores. But the Canadian market has now reached a demanding mass, led by Alberta – with 306 retail outlets.
Furthermore, the current fundamentals are now notably decisive for the Canadian cannabis business. Already, some firms are making the transition to rack up profits. However, what highlights Canada’s place as the premier domain for the cannabis venture is its future potential.
Lastly, it starts with higher cannabis usage models. Though several US states legalized fully, Canadians have a tremendous consumption rate than most pro-cannabis US states.