Now What? Canada legalizes recreational cannabis, but what does this mean for your CPG brand?

Bethany Gomez

June 26, 2018

After more than a year of legislation and preparation, Canada has officially voted to legalize recreational cannabis.  Recreational sales are expected begin in Q4 of this year, only slightly behind schedule (which is pretty good for cannabis).  So now that our dear neighbor to the North has fully legalized cannabis at the national level what does that mean for CPG companies who have been watching this industry from the sidelines, waiting for the time to act?

You will feel the effects...

A recent Brightfield Group survey shows that more than half of cannabis users have decreased their alcohol consumption following cannabis legalization, and nearly 1 in 5 now rarely or never drink alcohol now that cannabis is legal.  Canada already has one of the highest rates of cannabis consumption in the world and with loosening stigma and product readily available, consumption rates are sure to spike, leading to declines in sales of alcohol.   According to NSDUH data, the percentage of adults 26+ using cannabis in Colorado spiked from 11% in 2008/2009 to 20% in 2014/15 following legalization, with similar spikes were seen in Washington: 9% in 2008/09 to 15% in 2014/15.  Other negatively affected industries include OTC analgesics, OTC topicals, select prescription medications and tobacco.

You have an obvious point of entry and product development … (with a catch)

Alc/Bev companies are viewing partnerships with Canadian LPs as a point of entry into the legal cannabis industry.  It gives them a fully legal market where they focus their product development attention, develop a product that can then be ready to commercialize in the US and worldwide.  Sound easy right?  The only problem is the tight restrictions on product development in Canada: edibles are not yet legal so technically it is illegal for anyone to actually test your product or for you to sell it.  The edibles market is expected to open in 2019, but no regulatory framework has been built on this yet and Canada has been dragging their feet on edibles for years.  This also means that these Canadian LPs to do not have established expertise in developing infused products.  

Cross-border partnerships between US cannabis companies and Canadian LPs...

While CPG companies are looking to Canadian LPs as a point of entry into cannabis, the LPs are looking to their American counterparts with expertise in infused products.  Product availability in Canada has been strictly limited to the most basic products (ie. Only flower, oils and capsules) that they are looking to their neighbors to the South for partnerships that will allow them to gain inroads into competitive sectors like Edibles, Drinks, Concentrates and Topicals that will dominate the Canadian market once product availability opens.  While CPG companies cannot partner with these brands outright, working with a Canadian LP that is partnering with established brands in the space will help pass that acumen back to you. 

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