How Cannabis Companies Are Strategizing For The ‘Second Wave’
Industry News - Jun 05, 2019

How Cannabis Companies Are Strategizing For The ‘Second Wave’

It’s a balancing act between innovating on edibles, concentrates and topicals and waiting for the final regulations to be ironed out.

The “second wave” of legalization is set to occur later in 2019, introducing new classes of products such as cannabis ediblesconcentrates and topicals to the market.

Early reports predict there’s plenty of money to be made. Eater declared cannabis beverages “the next big thing,” while The Arcview Group predicts edibles could be a $4.1-billion market in Canada and the United States by 2022. Deloitte estimates six out of 10 consumers will choose edible products.

With ample financial opportunities on the horizon, companies are gearing up for the second wave. The primary challenge: it’s hard to plan for something that hasn’t yet planned itself.

“The regulations for these new product types are not yet in final form,” says cannabis lawyer Trina Fraser, co-managing partner at the Ottawa firm Brazeau Sellers. “There is risk in proceeding with build-out and application submission at this point as the final regulations could differ from the draft ones on material issues, such as whether edible cannabis can be manufactured in the same building as non-infused food.”

The eagerness to be first to market must be balanced against the risk of regulatory uncertainty. Some are already prepaing for this second wave, but Fraser insists it’s still early days.

Investing in production and distribution

One company to get a jumpstart on the imminent market is Indiva, a licensed producer based in London, Ont.

“We have hired very experienced, senior [consumer packaged goods] executives to manage our production facility and create the most efficient processing space possible,” says Niel Marotta, Indiva’s president and CEO.

The company has invested millions of dollars in extraction and production equipment, including a 70-tonne ethanol extraction system that will annually produce more than 4 million grams of distillate.

“We have also purchased equipment to process some 100 kg of chocolate per hour, allowing us to make tens of millions of chocolates annually at our facility in London,” Marotta says.

To date, Marotta says Indiva has “aggressively” pursued distribution agreements in many provinces.

“There is some education needed here, and luckily there is data available on our product offering, which we hope will allow for a great deal of confidence introducing our licensed products to Canadians.”

Strategic partnerships the ‘fastest route’ to market

With more than 600 applications to cultivate, process or sell cannabis currently pending (some of which have been awaiting detailed review for years) and the timeline to complete security clearances being variable, the ability to predict the time to licensing is extremely limited.

Even with the recent changes announced by Health Canada aimed at trimming wait times, Fraser says Health Canada’s service standard goals are still aspirational. It’s unclear when, if ever, they will be achieved.

“Some looking to enter this space are mitigating the licensing risk by partnering with existing licensed processors who have the capacity to set up manufacturing within their currently licensed site,” Fraser says. “This provides access to cannabis regulatory experience and is likely the fastest route to get to market.”

Marotta says Indiva hasn’t heavily invested in research and development, and instead is pursuing licences with established companies that already sell name brand products, such as Bhang Chocolate and Ruby Sugar.

“This way we piggyback on years of research and development completed by companies that already compete in mature markets,” Marotta says. “We will also look to create Indiva branded product in this segment. However, we believe we are setting up a better risk-adjusted return by starting with licensed products.”

‘Even our brewmaster has a PhD’

Toronto-based Province Brands of Canada is another company getting a headstart on the second wave. The high-end cannabis beverage company is focused on creating a “fermented beer beverage” from cannabis stalks and stems. The process is patent pending.

“The traditional brewing process uses ingredients like barley and yeast, whereas our process substitutes some of the traditional base ingredients and uses cannabis stalks and stems to create the sugars required to brew the beverage,” says Jennifer Thomas, co-founder and chief legal officer of Province Brands.

The company is building what they call the “world’s first cannabis brewery,” a 123,000-sq. ft. facility located in Grimsby, Ont., and has forged research partnerships with academic centres such as Loyalist College in Belleville, Ont., and Western University in London, Ont.

“These long-term research partnerships are perfect opportunities to work on the scaling our unique process to brew our beverage,” Thomas says. “Outside of the university system, we have a team of world-class scientists working to further our beverage technology research. Even our brewmaster has a PhD.”

In terms of strategic partners, Province Brands says they have a “strong alliance” with Auxly Cannabis Group and are members of the Cannabis Beverage Producers Alliance. The company already has relationships (and some white label agreements) with a number of beverage manufacturers.

While companies are fervently preparing for this second wave, there’s only so much progress to be made until the finer details are ironed out. Until then, companies moving forward in their anticipatory efforts are charting unknown territory.

This article was originally published by Lift & Co..

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