At The World Cannabis Congress, Industry Leaders Look Back on Year 1 of Canadian Legalization

All eyes were on Canada last June, as the country passed legislation making it one of the first nations in the world to embrace broad legalization of recreational cannabis. It was a massive policy shift that would have seemed improbable at best just a few years prior, and a policy that is still years ahead of much of the world.

Flash forward to today and legal cannabis sales in Canada have been going on for eight months. And as many people in this burgeoning industry will tell you, it's been a roller coaster of a ride, with plenty of ups and downs and lightning-fast changes. And there's still plenty to come for the industry as it continues to grow and mature in the coming years.

To really get a feel on what exactly has happened in Canada's first year of recreational cannabis sales and what we can all expect going forward, Civilized brought together a panel of some of the industry's foremost leaders to discuss just that at this year's World Cannabis Congress.

Civilized president Terri Riedle was joined by Supreme Cannabis president John Fowler, Aurora Cannabis CCO Darren Karasiuk, Sundial CEO Torsten Kuenzlen and Hills & Gertner CEO Lorne Gertner to reflect on the year that has passed and talk about where the industry is headed next.

What were the biggest surprises from year one?

In a brand new industry there are bound to be surprises, and you just can't predict everything that is going to happen. But the biggest surprises for the industry leaders had less to do with changing consumer demographics, or the cannabis shortage Canada continues to struggle with. Instead, business strategies proved to be the most surprising.

For Fowler, it was the quantity-over-quality mantra that so many businesses took up which  struck him the most. And that's something he said has to change if legal sellers ever want to actually compete with the black market.

"If we can't produce better cannabis products with hundreds of millions of dollars and scientists and PhD and engineers than some 20-year-old-kids who are running to Home Depot because they just got a medical cannabis license for a homegrow, then we should all probably stop what we're doing and return all our money to shareholders."

Kuenzlen took a less pessimistic view of business practices than Fowler. He said he noticed a lot of "unconventional brand building in a way that the world has never seen." While this worked for some businesses trying to work around tight regulations and the complexities of a new market, key things like "continuous availability" were passed on.

In Gertner's perspective though, it wasn't so much the way businesses were operating that surprised him as it was the Ontario government's perplexing cannabis regulations. As of right now, Canada's largest provincial market has licensed a mere 25 cannabis dispensaries and many of them have yet to even open.

"Ontario surprised me the most given that I thought we would be further ahead," said Gertner.

However, it's not all bad, said Gertner, as the industry now has a bigger talent pool to pull from than ever before.

"What surprised me and excites me most is the people we've attracted in the last year to 18 months to this industry. You look back to five years ago to who was in the audience and who was talking."

Is Canada losing its first mover advantage?

Recently, noted investment banker Neil Selfe opined that Canada 'blew it' when it comes to positioning itself as the global cannabis leader. The argument goes that the rise of the multi-state operators (MSOs)—cannabis retailers who have begun operating in more than one US state—will outpace Canadian producers quickly and begin to dominate the global markets as it expands.

But industry leaders on the panel weren't so quick to write off Canada's cannabis lead just yet. As Gertner said, most of the big Canadian businesses have already worked out how to get through many of the challenges US MSOs are currently dealing with.

"We're the original MSOs," stated Gertner. "We were all for the most part provincial players that figured out how to play province by province."

"I think we'll continue to lead because we've got this advantage: growing flower is really hard. We've all perfected it at this point, it'll take a while for anybody else to do that."

It's a sentiment that Karasiuk agreed with. While he admitted that Canada is still facing challenges entering the American market, it's doing just fine in many other places across the world.

"If you look beyond this parochial focus just south of the border and look globally in terms of things I certainly think we're out there in full force."

Because of these reasons, Fowler said it's time for Wall Street to reassess their thoughts on Canada's cannabis industry.

"For everything we give up versus the US in terms of speed to market and advertising and all this you gain the fact that we have essentially a California size market with only a handful of meaningful players," said Fowler. "This is a far more exciting 30 million person market than the capital market is giving it credit for in the near term."

Will a Conservative government mean a change in Canada's national cannabis policies?

Most people in the cannabis industry are keenly aware of the types of cannabis policy changes that could be coming following the upcoming US presidential election. Most of the top candidates are backing some sort of cannabis legalization package and there are signs that federal legalization is quickly approaching.

But Canada is also facing down a federal election of its own in the coming months, one that could potentially see the Liberal government (which brought in Canada's cannabis legalization) replaced with the less cannabis-friendly Conservatives. But would the change in governments mean a change in cannabis policies? Not likely, said Kuenzlen.

"I have a hard time imagining that anybody would want to walk away from something that is working really well, that's improving everyday and has proven successful. I have no doubt it's going to be the model for other markets around the world to follow."

The industry has proven to be such an economic powerhouse for the country that cannabis is now an issue that will cross party lines, said Karasiuk.

"What this industry brings to Canada in terms of employment, economic spinoff, the benefits to patients - we think those are non-partisan messages that will continue to resonate regardless of who's in the helm."

How will the legalization of edibles impact Canada's cannabis market?

There has been some big talk about what the upcoming legalization of edibles and other cannabis-infused products will mean for Canada's marijuana industry. But how much of an impact will things like cannabis-infused food and drinks really have? Probably not as much as some people think, predicted Kuenzlen.

"I've heard estimates that up to 30 percent of cannabis will be drunk," Kuenzlen said. "I'm happy to take a bet on that, that's probably not going to happen over the next couple of years."

Instead, businesses should expect flower to continue to be the consumer favorite among product categories.

"Inhalables, for the foreseeable future, are going to continue to dominate. I don't expect it to be significantly different."

Gertner agreed and said that, at least for the next couple of years, the biggest companies will be the ones with the best flower.

"The fight for market share is going to be fought on flower."

However, Karasiuk wasn't as prepared to make such a claim. At this point, we just don't know what the people who currently aren't consuming cannabis want. And if you can attract them to the market it could potentially change the game.

"I think it's challenging to ask non-consumers [in] a survey format for preference of things they have no experience with in a very explicit way," explained Karasiuk. "We can certainly find out what they want, we can certainly understand the problems you can fix."

And drinks have a huge potential to displace the market simply because of the importance alcohol has in our culture, said Fowler. If consumers start to think of cannabis beverages the same way they think about booze, it could mean a real shift for the industry.

"I think it comes down to ritual. Alcohol is a unique ritual ingrained in every part of our society. I was on a flight last night that didn't load beer and that was a crisis."

And while there is no clear indication of exactly where the industry is going, said Gertner, it will undoubtedly change.

"If you want to talk about 2030, and you want to talk about predictions, and you want to talk about my children's children and how they will consume cannabis, I think it will be totally different from what it is today."

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Hiding behind big sunglasses, I slunk to my car and started the engine. The bag containing a month’s worth of flower and edibles that I had just bought at Weedology, a legal dispensary in Ontario, Oregon was stuffed hastily into my bag; I dared not unseal it to survey the goods. Though my heart was pounding, I forced myself to cut a slow track out of the parking lot.

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